Category Archives: DANTH

The Apparel Niche and the Home & Hearth Niche: The Growing Importance of Independent Operators

Posted on by

Introduction

The apparel niche and the home & hearth niche may seem unrelated, but they share several commonalities:

  • They are both particularly important to downtowns
  • They are both facing challenges, and
  • They will both be relying on the success of independent operators for their future well-being and growth.

Apparel

First, let’s consider apparel. This niche is important to downtowns because women are our most prominent and powerful shoppers (making 80% of the purchases for the home and family). And clothing, shoes and accessories purchases for themselves and their children are an important part of women’s purchases. As we’ve reported in previous blasts, time-pressured mothers are willing to accept higher prices from downtown vendors if they can shop quickly and easily close to home. In addition, a successful apparel niche adds diversity to the downtown mix and stimulates interest in strolling and window shopping.

But apparel has been an at-risk niche for the past two decades. While the industry has grown, it has grown at a pace much slower than other retail sectors. Additionally, major retailers like Ann Taylor, the Gap and Chico’s – the kind of trophy apparel shop that many downtowns have targeted as their dream tenants – are not opening new stores as they suffer reduced sales in a difficult economic climate.

What to do? We all know of downtowns where there is more than sufficient unmet demand for apparel within a ten-minute drive shed to support a new store with $300,000 to $400,000 in annual sales. Such revenue may be too low for a national chain, but very adequate for an independent operator.

These new merchants will need a great deal of support from the downtown organization in finding affordable space, negotiating leases and perhaps even “sourcing” their merchandise. To succeed it will help that these merchants:

  • Be a local resident – for instance, a local mother – with a network of friends and colleagues in the community
  • Represent and market to a specific and strongly populated ethnic group in the community
  • Be opening a very high-end shop that provides an exceptional level of pampering and customer service
  • Be able to solve the problem of sourcing attractive merchandise

In many instances, an independent operation apparel niche is not going to be recognized or realized without the proactive intervention of a downtown organization. Your organization can help foster such a niche by:

  • Having market research performed to identify opportunities
  • Indentifying and cultivating possible entrepreneurs
  • Helping the entrepreneurs form a viable business plan, find appropriate affordable space, find loans or investors, etc.

Home & Hearth

For decades, revitalization advocates have searched for a type of retailing that can thrive in downtown locations despite the presence of nearby malls and big box discount retailers. DANTH has found that home and hearth niches are very often the answer.

Home and hearth niches are groups of shops that feature goods and services that enable shoppers to make their homes more comfortable, more entertaining and more beautiful. They include retail establishments selling furniture, carpets, antiques, table top goods, window treatments, hardware, electronics, art works, picture frames, tiles, appliances, kitchen and bathroom equipment, plumbing supplies, telephones, and gardening equipment. This niche can also include architects, plumbers, carpenters, contractors and service firms that deal with lawns and septic tanks.

Usually, the firms in this niche are overwhelmingly independent operators or small regional chains. They usually don’t need vanilla box spaces.

The home and hearth niche is very dependent on the housing market and the niche’s current economic woes have traced the decline in home values. But DANTH believes that demand for this niche’s products and services soon will begin to grow as consumers start to put more money and attention into fixing up their current homes instead of buying new ones. Home Depot and Lowe’s have already pivoted their marketing in this direction. Economic conditions have also sent Americans into more “cocooning” in their homes which is leading to strong sales of flat screen TVs and other home theater accoutrements.

Plus, the long-term trend for this niche is very good, showing that businesses in the home and hearth sector have grown at a pace greater than GAFO in eight of the last ten years for which data are available. DANTH expects that as the current housing crisis is resolved and household formation again rises, sales in home and hearth stores will follow suit. Now, as the market is bottoming out, is a good time for downtown organizations to strengthen or build their home and hearth niches.

Another positive for this sector is that downtown organizations will need to do less work in attracting and building this niche than with an apparel niche – since less home and hearth business owners are “newbie’s” to the industry. The downtown organization can take on a more traditional business recruitment effort without having to provide the large amount of business development assistance that independent apparel operators will require.

This posting was condensed from my longer report by Mary Mann. To read the full report on Apparel and Home & Hearth Niches, visit www.danth.com.

Downtown Retail Part II: The Nexus of Time Pressure, Proximity, Convenience and Customer Service

Posted on by

In recent postings I have detailed how retailers, over the coming five years, will be facing an environment in which shoppers, especially those in the middle-income bracket, will be having fewer discretionary dollars to spend and consequently inclined to give more weight to low price in their purchasing decisions. In this posting I argue that downtown retailers will best handle these trying circumstances if they understand and exploit the nexus of time pressure, proximity, convenience and customer service. Even in an economic environment where price is a leading factor, downtowns and downtown retailers can compete when they offer the time-pressed local shopper the proper convenience and customer service. Time pressure is what is making proximity again a powerful downtown asset.

Time pressure: Americans are more time pressed than ever and this is changing our society in many ways, sometimes subtle, other times not. Major golf outings are down 33%, major cultural centers like the Metropolitan Opera are shortening performances and intermissions to satisfy the modern customer who demands “express entertainment” and health clubs are offering 30-minute “drive-by” workouts for the busy-but buff-body. The most time-pressed group is working mothers with young children. One way these mothers are creating time for themselves is by spending far less time shopping, especially traveling to and from malls. Another is outsourcing food preparation through take out, sit-down and prepared meals. Time pressure is making consumers look for shopping opportunities close to home. It also inclines them to “satisfice,” i.e., to buy merchandise that is “good enough” in terms of quality and/or price, which sometimes makes it easier for downtown merchants with limited assortments to compete.

Proximity: Downtowns have always been closer to the typical residential shopper than that super-regional mall, but, as we all know, the allure of the mall with its vast retail selection, sea of parking and low price points has siphoned off downtown customers for decades. Now, time pressure and convenience (and gas prices to fill that gigantic SUV) are making downtown appealing again. Back in the 1970s, people might pile into the car for a 10 a.m. to 3 p.m. day at the mall – it was considered a leisure trip. This is not the case anymore.

Convenience: This means making visits quick, easy and, if possible, enjoyable. Time in and out is fast and/or well spent; products are easy to find. But can convenience compete against low prices in an economic crunch? Yes, if the other three factors of Time Pressure, Proximity and Customer Service come into play. Studies show that convenience can often beat price when it comes to household necessities like food and drugstore items. Even Wal-Mart, Home Depot and Sears are experimenting with smaller store formats to speed up the shopper experience – including self-checkouts. Downtown retailers with their intimate size are already there – but don’t hide the milk at the back of the store! Consumers get aggravated when they realize they are being manipulated and are losing precious time. Convenience also means that the entire downtown shopping district is quick and easy to navigate – busy streets are easy to cross, parking is well-marked and available, public toilets are provided and are user-friendly for moms with young children, etc.

Customer Service: This means providing customers– through personal services — a quick, easy and enjoyable shopping experience. There are numerous ways to achieve this including letting customers shop after hours, knowing their names and their favorite products, sending them birthday cards, providing cappuccinos, offering gift wrapping and delivering their purchases to their homes so they don’t have to carry them around town. Big boxes cannot compete on the same level (or they haven’t tried – yet!).

Downtown merchants can seldom compete on price, but they, alone and organized, can hit home runs on convenience.

For the full report on “The Nexus of Time Pressure, Downtown Proximity, Convenience and Customer Service” visit www.danth.com after May 1, 2008.

This posting was written with the inestimable assistance of Mary Mann.

Downtown Retail
 Part II: Downtowns Will Be Effected To Different Degrees

Posted on by

The first installment of this retail trends assessment argued that it was very likely that over the next five years retailers would be facing a situation in which consumers would be having significantly fewer discretionary dollars to spend. The first installment also argued that the resulting increased importance of price in consumer decisions would enhance the attractiveness and strength of price-driven value retailers while decreasing the appeal and strength of retailers who offered shoppers opportunities for “trading up.”

However, there will be some variation in the ways that downtowns encounter stressful economic conditions.

A. Regional Economies. There will be significant variation by state – and by region within states – based on their housing markets (not all are tanking), foreign exports (now hot), agriculture (now hot), auto industry (now cold), etc.

B. Shoppers’ Household Incomes. DANTH’s analysis suggests that downtowns in market areas dominated by middle-income households may be stressed more significantly than those that rely on shoppers from either low-income or high income-households.

Downtowns With Lots of Low Income Shoppers.1 In a very interesting piece of research, Cox and Alm have shown that households in the lowest income quintile have a surprising amount of spending power that is far greater than their taxable incomes: though their average household income in 2006 was $9,974, the average total for household expenditures for consumer goods was nearly twice that, $18,153.

Household income correlates with household size. Factoring for this and looking at consumption per person, the difference between the richest and poorest households is just 2.1 to 1, while the income differential between the richest and poorest households is close to 15 to 1. 2

Quite astonishingly, Cox and Alm found that: “The average person in the middle fifth consumes just 29 percent more than someone living in a bottom-fifth household.” 3 This may help explain why, in addition to their population density, “poor” neighborhoods often have bustling shopping districts where merchants can have surprisingly high sales per square foot – e.g., $1,300 PSF.

Cox and Alm explain the surprising purchasing power of America’s poorest households by their financial inflows. They claim that, on average, these lower-income families have access “to various sources of spending money that doesn’t fall under taxable income” amounting to $10,716 per year.4 Cox and Alm claim that the sources of these financial inflows “include portions of sales of property like homes and cars and securities that are not subject to capital gains taxes, insurance policies redeemed, or the drawing down of bank accounts.” DANTH believes that for the many mired in poverty other “financial inflows” may be involved and that substantial portions of these monies may not be very dependent on the business cycle.

DANTH’s review of the Cox and Alm data suggests that only about 16% of the consumer expenditures made by low income families are for discretionary items. This means that 84% of their expenditures are for items that are everyday necessities and for which their “demand” is rather inelastic.

Many downtowns and large urban commercial districts located in low and moderate income neighborhoods are also buttressed against stressful economic times because they have a number of economic functions that must be performed whether the economy is running hot or cold. Among these functions are hospitals, schools, government offices, courts and transportation facilities. Their employees and the visitors they attract are important customer bases for local retailers.

Dart Westphal is the president of the Mosholu Preservation Corporation in the Norwood section of The Bronx (NY), which is dominated by low- and moderate-income households. The local economy is heavily influenced by Montefiore Hospital and has a vibrant commercial district along Jerome Avenue and Gun Hill Road. Westphal feels that his commercial district is not effected adversely by recessions as much as other districts because:

“Hospitals are counter cyclical or at least more resistant to economic slowdowns than other sectors. In the first place people don’t get sicker or less sick depending on the business cycle and our “customers” are not usually making a purchasing decision they can put off. Put another way demand for hospital services is not elastic. Secondly, as other parts of the economy slow down and prices flatten or decline, the ability of institutions to spend money buying and building things may actually increase, helping the area in general maintain economic stability. Local retailers benefit by continuing to have customers (hospital employees) who have jobs. Also at the ‘inexpensive’ end of the residential market there is less purely discretionary spending so that the money that is in the economy is weighted more heavily to basic necessities…not many people trading up to Gucci.”5

Downtowns With Many Wealthy Shoppers. As one observer has noted, there are:
“…Consumers who will buy …regardless of recessionary woes, the kind of folks, who, to paraphrase a WWD headline a few days ago, are more concerned with getting their high heels wet waiting in a drizzle outside of Chanel’s couture show, than they are about this ‘thing’ called a recession.” 6

While this quote may be somewhat hyperbolic, most retail analysts agree that the consumer behavior of the nation’s wealthy shoppers will not be strongly curtailed by the current stressful economic conditions. Some cite households with incomes above $150,000/yr as the income threshold for such recession resistant shopping behavior.

A review of the following statistics from Cox and Alm indicates why the consumer behavior of the wealthy is so resistant to economic downturns. The top quintile of households earned an average of $149,963 in 2006 and spent a total of $69,863 on food, clothing, shelter, utilities, transportation, health care and “other categories of consumption.” The remainder of their income was spent on taxes, $23,376, and most significantly, savings and investments, $47,171. Indeed, among the top quintile of households, all consumer expenditures – discretionary and non-discretionary – represents roughly 47% of household incomes. The same figures for the middle and lowest quintiles are 77% and 182%.

Downtown retail districts such as Rodeo Drive (CA), Madison Avenue (NYC), Greenwich (CT), Wellesley (MA) and Palm Beach (FL) may expect relatively undiminished levels of affluent shopper traffic.

Many “luxury” retailers also developed significant merchandise lines and sales channels that targeted middle income shoppers wanting to “trade up.” They are now being squeezed to the degree that their trading up sales contributed to their bottom lines. They probably will continue to be stressed as long as middle-income shoppers feel they have declining discretionary dollars. These “mass luxury” retailers are often located in strong, revitalized downtown commercial centers such as Westfield (NJ), Englewood (NJ), Old Pasadena (CA), Bethesda (MD), etc. that have lots of upper middle income shoppers.

Downtowns With Mostly Middle Income Shoppers. The first installment of this retail trends assessment detailed the increasing constraints on the discretionary expenditures of middle-income households and noted the importance and susceptibility of dual income households with children. At this point of the analysis it is useful to clarify the implications of this finding for downtown retailers and their downtown organizations.

Working on this assessment DANTH has concluded that:
• For the vast majority of downtowns, dual-income middle class households with children are a very important potential consumer market. They represent a lot of the spending power in a downtown’s trade area. The working women in these households are their most important potential shoppers.
• This has been the case for about 20 years
• Although a few individual merchants in a downtown may succeed with this strategically critical market segment, most downtowns have failed to make local shoppers from dual income households steady retail customers.
• The relatively few downtowns that have successfully developed a dual income female shopper customer base – e.g., Westfield (NJ) and Englewood (NJ) – have been shining examples of downtown retail revitalization
• It is noteworthy that, currently within the downtown revitalization community, there seems to be agreement that the best strategy for revitalizing a downtown’s retail base is to have multi-use redevelopment projects that bring in young professionals (a.k.a. yuppies or the “walking wallets’) and the empty-nesters. When this strategy works the yuppies and empty nesters help create an array of retail offerings and a shopping environment that then can attract shoppers from dual income families
• The yuppie-empty nester-mixed use retail revitalization strategy takes a lot of time to implement, requires large financial investments and usually entails enduring grueling local government permissions and approvals processes
• Strategically, what most downtowns need – especially those that are small and medium sized– is a strategy for attracting the working mommy shopper that is cheaper, quicker and less expensive than the yuppie-empty nester redevelopment strategy.
• Such a strategy will help many downtown retailers and their downtown organizations to cope with the current tough economic conditions.

The pursuit of such a strategy will serve as a filter in the remainder of this assessment.

In our consulting assignments and in our visits to downtowns across the nation, DANTH has observed that in most small and medium-sized downtowns that have successfully attracted working mommies there are other operations that provide merchandise and services for children – e.g., schools; apparel, toy and hobby shops; dance and martial arts studios, etc. These downtowns also tend to have non-retail functions such as entertainment and “pamper” niches that generate traffic retailers can feed on. These observations will provide another filter in the discussion that follows in later postings.
——————————-
ENDNOTES:
 1. A caveat: This analysis does not claim or imply that our nation’s poor face anything other than dire and unacceptable economic conditions. However, in our assignments in Jamaica Center (NY), Fordham Road(NY), Downtown Brooklyn (NY), Norwood (NY), West New York (NJ), Elizabeth (NJ), etc., we have found vibrant low to moderate –income, ethnic shopping centers with surprising total retail sales. We believe this analysis helps explain why those districts are strong.
2. W. Michael Cox and Richard Alm, “You Are What You Spend,” New York Times, February 10, 2008
3. Ibid.
4. Ibid.
5. Dart Westphal, President, Mosholu Preservation Corporation in an email communication.
6. “Fashion Notebook: The Luxury Market, The Recession and What Marketers Can Do About It.” WWD is an acronym for Women’s Wear Daily, a fashion industry paper. http://brandmediaweek.typepad.com/fashionnotebook/2008/01/the-luxury-mark.html.

DOWNTOWN MOVIE THEATERS WILL BE INCREASINGLY IN PERIL

Posted on by

Our Lustrum Trends Assessments.

For the past 20 years, about every five years (a lustrum) DANTH, Inc. has engaged in a review of the social, economic and political trends that are — or soon will be– affecting the health and well-being of downtown, urban neighborhood and Main Street commercial districts. We do this because it is an essential asset when we work on any kind of revitalization strategy for our clients.

Being a curmudgeon, I must also strongly opine that being aware of these trends and their potential effects is an essential component of any district manager’s job. Unfortunately it is a job function that too many managers ignore.

The results of DANTH’s last trends assessment in 2003 are available free of charge at: http://www.danth.com/pdf/trends_3_25_05.pdf

Below is a “tease” excerpt from the first installment of the 2008 assessment.

Downtown Movie Theaters Are Very Vulnerable.

Downtown movie theater closures are bad news because:
• They are usually important downtown assets
• Closed cinemas are usually large, highly visible spaces, occupying considerable frontage and consequently a huge negative for a downtown’s image. It is also usually very hard to re-tenant an empty cinema — too many stay vacant for numerous years, often for decades. Some of the conversions, e.g., bingo halls and flea markets, are often less than desirable for spaces having prime locations and large size.

Movie theaters are in an increasingly weakened position because:
• Their hold on adult audiences is small and diminishing. By a five-to-one ratio Americans view films more at home than they do in movie theaters. Move theaters account for only about 12% of the movie industry’s revenues.
• Even the most frequent movie goers prefer home viewing
• Many theaters have low operating margins based primarily on revenues from concession stands and screen ads. Just a small drop in the paid attendance can be devastating financially: a mere six percent drop in attendance in 2000-2001 put most of the theater chains into bankruptcy.
• A relatively modest reduction in paid attendance by a small group of frequent moviegoers could easily erase these meager margins. The frequent movie goers do not have to completely stop visiting movies theaters for the impact to be devastating. This is an important point.
• The frequent movie-goers have demographic characteristics that highly correlate with the use of computers and other electronic home entertainment equipment
• Many theaters lack amenities such as many screens, large screens, first run films, stadium seating, clean restrooms and theaters floors. This is especially true of cinemas in small and medium-sized downtowns
• Theaters provide a very small revenue stream for the major movie studios. Consequently, the studios are incentivized to make decisions that will help other film distribution channels although they may hurt the theaters

Rival Home Film Distribution Channels Are Poised To Grab Market Share.

Competing film distribution channels have been improving, many finding formulas that are aimed straight at the three key variables that most impact film viewer behavior — convenience, film selection and cost:
• On-demand cable TV has great convenience, wide household penetration, competitive prices and indications that some large operators will be offering significantly greater film selections. The introduction of HD broadcasts will also improve product quality and enhance competitive strength
• Apple TV and Vudu have a strong films service formula that could really grab market share if they can offer sufficient film variety. They, too, already offer on-demand convenience and competitive prices. Apple, because of iTunes, has a large amount of household penetration and brand loyalty.
• The competitive strengths of the brick and mortar DVD shops and the mail delivered DVD services versus movie theaters has been improved recently by the growing presence of large HD TVs in American households and the final victory of the Blu-ray HD DVD format.

Tipping Point Scenarios.

Below are some scenarios under which a tipping point might occur:
• The cable TV and Internet film services improve their film libraries sufficiently to become real competitors with movie theaters.
• Real household incomes erode to the point that the cost of movie consumption grows in importance in consumer decision-making. The cost advantage of home viewing, popcorn, sodas, baby-sitting, etc, is substantial. Given the recent low growth in median household incomes and the soaring costs of medical services, energy, college educations, etc. and the reduced values of private homes, this scenario is likely to have substantial impact.
• The convenience and comfort of home movie theaters increase to the point that consumers prefer the home viewing experience even more than reported in the 2006 Pew survey. This is occurring now; the question is how big its impact will be.
• The major studios finally go for “simultaneous releases.” In 2006 and 2007 there was a lot of discussion within the major movie studios about releasing films to theaters, cable TV and Internet film services at the same time, with DVDs being released three months later. A major survey of movie audiences in the USA, Japan and Germany, which account for over half of the world’s film market, found that simultaneous releases would enable the studios to increase their revenues by 16%, but cause the revenues of movie theaters to shrink by 40%. More recently there has been some discussion of simultaneous releases for a limited number of films.
• An accumulation of impacts from all of the above.

The Complete Report

DANTH’s complete assessment of the dangers that downtown movie theaters will be increasingly facing will be posted on our website www.danth.com and publicly available by March 24th, 2008. As our current work on trends progresses, I plan to periodically post the complete reports of our findings on our website and excerpts on this blog. Here are some of the other topics we’ve been looking at in our assessment:
• Time-pressured people continue to be downtowns’ best friends
• Retailing is in for much tougher times
• Post-Kelo redevelopment
• Boomers are now seniors and a great market segment for downtowns
• Green redevelopment
• Owners or renters: downtown residential redevelopment
• Downtown crime redux
• Downtown solution trends:
– Mixed-use projects
– Transit-oriented development, getting more important every day
– Place-making
– Niche development
• Downtown organizations: a time to alter missions, roles and responsibilities
• The internet and downtown revitalization

Unfortunately, some of the trends DANTH identified suggest that downtowns will soon be confronting major new challenges. DANTH believes that being forewarned enables downtown organizations to be forearmed. Although proven solutions to these emerging threats do not exist, I will try in my postings to outline some approaches to finding them, while welcoming other members of the downtown revitalization community to share their solution suggestions.

Despite The New National Wave Of Crime, Downtown Security Strategies Still Stand

Posted on by

In a June 24, 2007 posting, “The Downtown Crime Problem Redux?”, I asked if crime was again becoming a crippling problem for our nation’s downtowns because:
“(T)he FBI just announced an increase in violent crimes for the second straight year, an occurrence that signals the first continued spike in homicides, robberies and other serious offenses since the early 1990s. This spike is especially noticeable in medium-sized cities and cities located in the Midwest. In large cities such as New York, the crime rate continues to decline.

What is unknown at this time is how this recent uptick in crime has impacted on downtown districts.”

I was concerned because such an uptick would be a strong indication that the new policing strategies combined with the creation of 24-hour downtowns were no longer effective ways to solve downtown crime problems. That was important since I had claimed in DANTH’s 2003 downtown trends report that “crime is no longer the barrier to downtown revitalization that it once was” (see our website to download the report http://www.danth.com/pdf/trends_3_25_05.pdf).

I recently conducted an online search for information about downtown crime rates around the nation. I found data for 12 large and medium-sized cities. While this is admittedly a small sample, the results seem reassuring:

Atlanta, GA, Aug.2007. Population: 486,411
1. For several years downtown had 9% of city’s crime, but a daily population of half the size of the entire city. It now has just 6% of the city’s crimes.
2. Downtown there has been a 61% drop in major crimes over the last 6 months

Boise, ID July 2007. Population: 198,638
Continuing trend of declining crime downtown, with a 14% decline in the last year.

Chapel Hill, NC Nov. 2004. Population: 49,919
1.Reports of “major crimes” had gone down in each of the last three years for which the numbers were available.
2, But the number of arrests for crimes committed in the downtown had gone up. Leaders feared people could still feel unsafe even though statistics showed some positive trends.

Cincinnati, OH May 2004. Population: 332,252
1.Last year, serious crime in downtown dipped by 1 percent. The bulk of all downtown crimes are thefts, many from cars
2. Of the city’s 75 killings in 2003, one was in the Central Business District.
3. Major problem: area is still perceived to be unsafe

Dallas, TX, January 2008. Population: 1,232,940
1. Car break-ins were a problem a few years ago, but crime has gone down in the past
year
2. “I tell people safety and crime is old news downtown,” says the downtown manager

Dayton, OH, January 2008. Population: 156.771
1. In January, 2008, City of Dayton officials released statistics that show the city’s crime rate continues to decline significantly.
2. Targeted crimes downtown declined by 39 percent over the past five years. From 2006 to 2007 alone, key downtown crime categories dropped more than 25 percent.
3. A further perspective on downtown safety: in 2007, statistics for targeted crime categories downtown represented just 5 percent of the city’s overall targeted crime numbers.

Lawrence, KS, Nov. 2007. Population: 88,605
1. Since 2001, violent crime has risen in downtown Lawrence
2. According to the Kansas Incident Based Reporting System, 41 assaults were reported in downtown Lawrence in 2001, a number which has steadily increased in the last five years. In 2006, there were 245 reports of assault and battery in downtown Lawrence,
an increase of nearly 100 from the year before.

Kansas City, MO June 2005. Population: 447,306
Between 2002 and 2004, the period before and after the improvement
district was introduced downtown crime had dropped in all categories: robbery, 34 percent; juvenile crime, 28 percent; public intoxication, 21 percent; suspicious behavior, 10 percent; and miscellaneous crimes against property, 10 percent.

Los Angeles, CA June 2007. Population: 3,849,378
1.The Downtown crime rate has dropped to its lowest level in more than 60 years.
2. Even as Los Angeles’ decrease contrasts with the national trend of rising crime rates, statistics show that the city still contends with high levels of gang-related violence. There was a 14% increase in such activity in 2006

Miami, FL, 2006. Population: 404,048
1. Over the past five years, Downtown Miami has become a safer place. Investment has soared, new businesses have opened, and the population continues to grow.
2. While the same decreases in crime incidents are registered city-wide over the 2000-2005, the overall decreases are more dramatic within the DDA boundaries.
3 Almost every category of crime incidents decreased within the DDA boundaries between 2000 and 2005.
4. Most notably there was nearly a 68% decrease in robberies and 38% decrease in larceny/thefts.
5. Criminal homicides within the DDA account for less than 4% of those occurring city-wide.

Philadelphia, PA 2004. Population: 1,448,394
1. The 9th consecutive year that there was a reduction in crime downtown
2. Statistics that document a continued drop in downtown crime: Comparing 2003 and 2004, part one crime (aggravated assault, homicide, rape, burglary, robbery, stolen auto and theft, minus retail theft) in the 6th and 9th police districts fell 9.46%; the Center City District experienced a 7.99% drop. Between 1999 and 2003, part one crimes, not counting retail theft, fell 35.77% in the 6th and 9th police districts and 31.94% in the Center City District.
3.Theft from auto declined 19.7% between 2003 and 2004 in the 6th and 9th police districts and 16.77% in the Center City District. Between 1999 and 2003, theft from auto fell 36.58% in the 6th and 9th districts and 30.72% in the Center City District.

Portland, OR, Jan. 2007. Population: 537,081
1. Crime drops for third straight year
2. 16% decrease in 2007

Some Observations:
• Except for Lawrence, KS, a medium-sized college town in the heart of the Midwest, all of the other downtowns report declining crime rates
• In several downtowns (e.g., Cincinnati, Atlanta, Dallas Miami and Kansas City) the wording of the report suggests that the downtown organization is still dealing with the problem of the fear of crime being out of sync with the actual level of crime. This is a long existing problem. Looking at the housing data in Eugenie Birch’s report “Who Lives Downtown” suggested a possible explanation: downtowns that lost considerable populations sent lots of people to live in other parts of the city who would tell others negative things about the downtown and who would be hard to persuade that things had improved. These “lost residents” created a powerful negative word-of-mouth network that spreads fears about being a crime victim if you go downtown. For example, between 1970 and 1980 Downtown Miami lost 41% of its population; Downtown Atlanta lost 21.9%; Downtown Cincinnati lost 27.2%; Downtown Dallas lost 27.7%. In contrast, Center City in Philadelphia only lost 8.8% of its population between 1970 and 1980 and had population increases thereafter. Downtown Portland also had a small population loss during the 1970s, 2.2%, and population growth thereafter. Surprisingly, Downtown Los Angeles has had a growing residential population since 1970.
• The situation in Downtown L.A. also demonstrates that high gang activity need not mean a higher crime rate nor impede a reduction in the fear of crime. This is consistent with the situation in Trenton, NJ that I reported on in a previous posting: Trenton has about 2,000 Bloods in a city of 85,000 people. The crime rate has fallen, though gang activity has risen and violence is confined to areas where the gangs are dominant.

BEING A DOWNTOWN CHANGE AGENT: Facilitating Change for Downtown Business Operators

Posted on by

Small Business Operators Are Slow To Adopt Changes

At conferences and other events where downtown managers congregate, the conversation at some time usually turns into a group therapy session focusing on the seemingly intractable, but certainly dysfunctional attitudes and behaviors of downtown business operators and landlords. Some of the dysfunctional behaviors raised might include deteriorating facades and signs, poor market research, lousy merchandising, “wrong” business hours, inadequate customer service, high rents, poor building conditions, harmful tenant selection, etc. Many readers, I am sure, know the rest of the litany.

Many downtown managers also consider it almost impossible to “re-educate” most downtown business operators and landlords or to otherwise induce them to improve their business behaviors. Years ago, based on my own management experiences and field observations as well as reports from friends managing downtown districts across the country, I came to a kind of Bayesian subjective probability estimate that only about five to seven percent of downtown business operators and landlords can be retrained or otherwise induced to innovate.

However, more recently, based on my program development experiences in the Bayonne Town Center (NJ), I have come to believe that significantly more downtown business operators can be induced to change, if, and this is a critical if, downtown leaders, acting as change agents, can help make it easy for them to change.

How To Get Existing Merchants To Renovate Their Facades?

About four years ago I took on the management of the Bayonne Town Center Special Improvement District. The previous executive director had done a great job of getting a highly respected architect, Walter Chatham, to write design guidelines, which were then adopted by the city as an ordinance. The city was offering then, as it still offers today, strong financial incentives to stimulate façade and storefront renovations in the district: a shop with a frontage of 25 feet can get a grant for as much as $10,000; a corner shop can get up to $15,000. However, while new businesses in the district were improving their facades, none of the existing street-level business operations were doing so, though many storefronts badly needed renovation. Officials in city hall as well as the Town Center board of directors could not understand why the city’s generous financial incentive package was not stimulating more façade improvements in the district.

While I quickly ascribed this situation to the typical change -adverse way I believed small downtown business operators behaved, my intellectual curiosity and feeling of management responsibility led me over the next year to talk informally to many merchants about why they were not improving their facades. Here are the surprising conclusions I reached as a result of those discussions:

  • A lot more merchants than I expected were interested in improving their facades. My rough estimate would be somewhere between 20% to 25%, not my expected 5% to 7%.
  • Merchants who owned their buildings were more apt to be interested in renovation than those who leased their spaces. This was understandable since they had more to gain and one less decision-making gatekeeper to deal with
  • Almost no one had any idea of what kind of new façade they might want!
  • No one felt they had a good idea of how much a façade renovation might cost!
  • Few knew an architect or contractor who might help them! Most small business people will not have architects or contractors in their social networks. They often work long hours and lack the opportunities to establish such contacts on their own
  • There was wide spread concern about getting city approvals for their projects!
  • Almost everyone knew about the city’s façade improvement financial incentives.
  • A minority of those interested in doing a facade improvement felt that even with the city’s financial incentives, they still could not afford to renovate
  • Most of those interested in improving their facades felt that, with the city’s financial assistance, they probably could afford to renovate. They were not moving forward because they did not know how to proceed and lacked the time and energy to remedy this situation!

Facilitating Change

As I mulled about these findings some research I had done in 1989 came to mind. Back then I was trying to find out why manufacturing firms were moving out-of-state from the Bronx, a borough of New York City. My research indicated that:

  • These firms were successful, expanding and needed more space

  • They were too small to have a real estate specialist on staff
  • Management was too busy with their growing business to look for a new location
  • They often need specialized training for their blue collar workforce
  • They had concerns about high crime
  • Recruiters from out-of-state economic development organizations had come in and offered turn-key solutions that included low-cost new space, manpower training, low crime, etc. The recruiters made it very easy for the Bronx firms to move to their states. In other words, the recruiters had facilitated change.

A program that could facilitate change seemed precisely what was needed to unleash façade improvements in the Bayonne Town Center.

The Jump Start Façade Improvement Program

Consequently, I designed the Town Center’s Jump Start Façade Improvement Program sm.

This program provides each participating business operator with the following products and services:

  • A well-known architect in the field, Margaret Westfield of Westfield Architects visits with them to listen to any ideas they might have about their new façades
  • She comes back several weeks later with a rendering of their new façade, cost estimates for the improvement project and samples of the materials that should be used
  • The façade design, because it is done by one of the Town Center’s architect’s in conformance with its design guidelines, has assured acceptance by the city
  • The Town Center’s staff, if necessary, helps participants with the paper work for the city’s incentive program and provides them with contact information about contractors who have done successful façade projects in the district.

Of the five storefronts in the initial round of the program, two renovations have been completed and three are in process, with completions expected by August 2007. A second round of Jump Start has been completed recently. One entire building façade has been renovated; action on six other storefronts is awaited.

The slide show below shows three of the improved building facades, before and after their renovations.


The Kick Start Building Renovation Program

Based on the success of the Jump Start program, the management of the Bayonne Town Center leaped at the opportunity to obtain a technical assistance grant from the Community Preservation Corporation (CPC) to create the Kick Start Building Renovation Program sm. Kick Start is aimed at stimulating district landlords to renovate the upper stories of their buildings and create market-rate residential units.

The CPC is a very large and successful nonprofit that uses CRA funds from over 80 banks and insurance companies to fund housing projects in NY, NJ and CT.

The Kick Start “treatment strategy” is again to facilitate change, this time by having the CPC’s architect-engineer provide each participating Town Center landlord with a feasibility study that describes how many residential units might be built on their property, the types of units that should be created and cost estimates for the project. The CPC also will be ready to finance feasible projects. Furthermore, because of the CPC’s reputation, it is anticipated that the feasibility studies will help ease their associated renovation projects through the city’s permissions and approvals process.

At the time of this blog posting, Kick Start is underway, but none of the three initial feasibility studies have been completed.

Facilitating One Change Can Help Facilitate Other Changes

As consultants have long known, developing a client’s trust and confidence in you and your firm is essential for having your recommendations implemented. Downtown managers, when acting as change agents, face a similar challenge with the business operators and landlords in their district. The Jump Start Program has helped to significantly increase the trust and confidence that district business operators and landlords have in the Town Center’s management team. This is true even among those who have not participated in Jump Start, but knew what happened in it. This has stimulated not only interest in participating in Jump Start and Kick Start, but it has also made some landlords more willing to work with us on business recruitment and redevelopment projects.

Some Additional Observations

My experiences with Jump Start strongly suggest that money, while not a negligible factor, is certainly often not the prime factor that impedes change and innovation among small downtown business operators. Knowing what can be done and easy access to needed professional assistance are also very strong factors.

The city’s permissions and approvals process also can have an enormous impact on downtown change and innovation. The Town Center has city legitimated design guidelines and its architect determines whether or not submitted designs are in accordance with them. The Town Center is thus able to provide designs for renovated facades that are guaranteed to be accepted by the city. This factor alone reduced anxieties about delays and escalating costs among the participating business operators.

Strong Downtown Entertainment Niches

Posted on by

Increasingly, downtown and Main Street commercial districts are finding strength through the establishment or expansion of an entertainment niche. This is happening in communities of all sizes. The theater district around Times Square in Manhattan has long been world famous. At the other end of the scale are communities as small as Weston, VT, with a population of 630, that is home to The Weston Playhouse Theatre Company, the oldest professional theater company in the state. Every summer it presents Broadway plays and musicals in a beautiful white-columned building on the village green. In between are literally hundreds of communities with theaters and performing arts centers for staging plays and concerts such as Carlisle, PA; Rahway, NJ; Englewood, NJ and Rutland, VT.

In most small and medium-sized downtowns, reliance on such formal entertainment venues will result in an entertainment niche that is, perhaps, moderately strong. The problem is that such formal venues, at best, are “lit” a few nights a week and dark during most days. Really strong downtown entertainment niches utilize other resources to attract and amuse visitors throughout most of the day and almost every day of the year.

Informal Entertainments

Entertainment essentially involves people being amused by something. In formal venues, they can be amused by plays, movies, concerts and dances — all requiring some kind of formal organization (a theater company, dance troop, orchestra) that is scheduled and “performs” the entertainment. However, strong downtown entertainment niches rely on the fact that people also are entertained when they are amused or pleased by observing other people — who, at the same time, may be amused by watching them. Great public spaces provide opportunities for “informal entertainments” that occur when people engage in activities that they enjoy and that also interest and amuse nearby people-watchers. Think of the ice skaters drawing the ever-present crowds above the rink in Rockefeller Center. Similarly, in Manhattan’s Bryant Park, you’ll find young men and women seated and watching each other and chess players, who always attract an audience. Greenport, NY, has used a carousel and waterfront location to create a wonderful public space where people can watch and be watched by other people. Other downtowns have fostered entertainment with facilities such as: a model boat pond; a children’s pony ride; a Wi-Fi hotspot to access and cruise the Internet on laptops; a place to catch the sun — a favorite pastime for office workers and young tourists in the spring and summer; places to buy food and eat lunch alfresco; outdoor cafes for sipping coffee and eating snacks; slot car racing for kids, playing bocce for seniors, etc.

Visitors will “perform” if the opportunities are there. To sail a model boat, a suitable pond or pool is required; to sit in the sun and people watch requires an attractive place with benches and chairs to sit on, etc.

The following link takes you to a photo album that illustrates a range of “informal entertainments”

Work As Entertainment

People are often engrossed and entertained by watching other people at work.

Decades ago, the people who brought back “historic” villages, — such as Colonial Williamsburg (VA) and Old Sturbridge Village (MA), — cleverly decided to have people at work, using 18th Century technologies, to educate and entertain visitors. For example, in Colonial Williamsburg visitors can watch 100 masters working in 30 trades. Included are an apothecary, blacksmith, cooper, brickyard, foundry, gunsmith, basket maker, etc.

In Old Town, located in San Diego, CA, visitors can watch glass blowing, wood-working and candle-making, though current technologies may be used.

The Simon Pearce retail store at The Mill in Quechee, Vermont, is perhaps the most brilliantly designed and executed retail project in the United States in a small Main Street setting. It combines a superb site in a renovated old mill located over a waterfall with a diverse assortment of retail goods ranging from blown glass to ceramics and superb furniture. In addition, at this diverse destination you can watch glass being blown, ceramics being thrown and decorated, fabrics being woven and enjoy a meal in a three star restaurant that has attractive water views. The Simon Pearce store at Quechee is a strong destination and lots of people leave there with bags full of merchandise.

At the Torpedo Factory in Alexandria, VA, an historic building has been renovated to provide studios for artists and craftsmen where visitors can watch jewelry being made, pots being thrown, lithographs being made, etc. and have opportunities to purchase the products.

At the Chelsea Market in Manhattan, visitors can be entertained by watching bread making at Amy’s Bread, a working kitchen for Sarabeth’s, a skilled knife sharpener, and people learning to dance the Tango.

People like to watch TV shows outdoors, as attested to by the crowds drawn the Today Show and Good Morning America.

Edward Villella has the Miami City Ballet rehearse in a storefront window, where pedestrians flock to watch the dancers.

Many diners want to sit at chef’s tables or counters where they can watch the cooking process and interact with the kitchen staff. Chef’s tables are often the hardest to book and offer the most expensive menus at topnotch restaurants. The noted French chef Joel Robuchon specifically designed his recent restaurants so most or all of his patrons sit at counters where they can watch their food being prepared.

Double click on the link below and you an access a photo album that illustrates “work as entertainment.”

Paying “Premiums” For Downtown Redevelopment Projects

Posted on by

A wave of public indignation and anger against the use of eminent domain for economic development purposes now threatens the renewal of our nation’s downtowns, Main Streets and neighborhood shopping areas. However, evidence suggests that the use of eminent domain for economic development purposes can be salvaged if universally acknowledged abuses are avoided AND the property owners and tenants dislocated through the use or invocation of eminent domain are paid a meaningful “premium.” The characteristics of the premium may differ case by case, with resulting variation in cost. However, it can be anticipated that the cost often will be significant, with considerable consequences on the financial feasibility of downtown redevelopment projects. Savvy downtown organizations will be finding ways to finance these new redevelopment project premiums.

Kelo’s impact. The reaction to the June 2005 decision of the U.S. Supreme Court in the Kelo v. New London case has put the use of eminent domain in jeopardy in a growing number of states across the nation. Though the court, in a close 5 to 4 decision, affirmed the use of eminent domain, legislation has been introduced or passed to reduce its use in Alabama, Delaware, Texas, Ohio, Minnesota, Colorado, Michigan, Pennsylvania, Florida and New Jersey. California also will hold a referendum on eminent domain in November 2006.

Though these legislative initiatives fall into a number of descriptive categories, their underlying objective — except possibly for clearly blighted situations– is usually to make it difficult or impossible for eminent domain to be used to increase tax revenues or for economic development purposes such as to enable real estate projects that putatively will significantly improve an area’s economic well-being.

Downtowns obviously cannot wait until blighted conditions appear before undertaking serious redevelopment projects. Doing so just makes redevelopment riskier, more costly and burdensomely complex. A way to make the use of eminent domain again palatable must be found. The future of America’s cities and towns is at stake.

Fair market value and the case for premiums. While the Kelo decision focused on the issue of public purpose, in my view the real challenge with eminent domain projects is political rather than legal and centers around the issue of fair market value. As things now stand, an eminent domain project will usually have potential victims from the getgo — the people who must give up the properties they own and who have not asked for the project to be initiated. While the project may indeed have results that will enhance the general good, the best that the property owners can do is get “fair market value.” Such victims can politically nullify a project’s public benefits and become the rallying point for political opposition.

HUD standards are often cited as exemplary when it comes to the use of eminent domain. They are based on an appraiser determining a property’s fair market value, which according to one of HUD’s publications can be understood in the following manner:

“Fair market value is sometimes defined as that amount of money which would probably be paid for a property in a sale between a willing seller, who does not have to sell, and a willing buyer, who does not have to buy. In some areas a different term or definition may be used….The fair market value of a property is generally considered to be ‘just compensation.’ Fair market value does not take into account intangible elements such as sentimental value, good will, business profits, or any special value that your property may have for you or for the Agency.”

Associate Justice Samuel Alito of the US Supreme Court went through his confirmation process around the time that the Kelo case was before the court. In a TV interview Alito was asked about the case and he uncharacteristically expressed a fairly clear view on the issue at hand — the use of eminent domain would be OK, if owners were paid a premium over fair market value for their properties, with the clear implication that such a premium is to compensate for the sort of “intangible elements” that are denied in HUD’s definition of fair market value and/or a share in the economic wealth generated by the project.

Such a legal position appears consistent with the claims of many redevelopment advocates who, in the vortex of debate that built up around the Kelo case, argued that the vast majority of property owners receive more than fair market value when their properties are sold under the threat of eminent domain. Redevelopment advocates also argued that commercial and residential tenants who are forced to relocate by eminent domain related redevelopment projects usually receive very favorable financial considerations. Unfortunately, there is no rigorous research to substantiate these claims, only a thin array of verbal anecdotes.

My own family’s experience indicates that property owners do not always feel that they have received a munificent amount of money from the governmental entity taking their property — or threatening to do so.. Furthermore, the whole experience can be quite complex and its true impacts may take years to emerge.

Back in the early 1950’s, the New York City Housing Authority used the threat of eminent domain to purchase a brownstone and tenement owned by my maternal grandmother in order to build a high rise “housing project.” My grandmother, four of her children and their spouses and children occupied apartments in these two buildings. We all lived in a warm and closely knit family environment. While the neighborhood was changing and family members had considered moving, there was a lot of inertia caused by the fear of the family being dispersed. When the city invoked eminent domain the family could not really judge whether the financial offer was fair or not. Most importantly, the family felt that it did not have the power to fight the city. Family members felt they had no choice but to make the moves to other neighborhoods that they had long contemplated. The money might have made things a little easier, but it was not viewed as a bonanza. The fact that we were forced to move left a somewhat bitter taste. I wonder how we would have reacted if the city had showed that it was paying us 25% above fair market value and explained “We are forcing you to move and the extra money is our way of trying to make up for it.”

Ironically, the diverse manifestations of redevelopment premiums are amply demonstrated by the types of final settlements made by the families involved in the Kelo litigation.

A state official involved in the negotiations claims that giving the property owners more money was a key to the settlements. Also, according to an article in the New York Times, one of the settling owners said “When you look at my property, put these on,” as he fiddled with a pair of sunglasses with dollar-sign holograms on the lenses. Susette Kelo, a lead plaintiff, agreed to have her house moved to a new lot. Another homeowner said the difference was a number of small concessions the city made:

  • While his house will be torn down, his family has an option to buy property in the new development at an agreed price.
  • The city also agreed to move the rhododendrons, yews and other plants his father planted 30 years ago and to install a plaque in the development to honor his mother, who fought the condemnation of her home until she died in 2003.

Successful redevelopment premiums will stimulate property owners and tenants to settle with the developer or development agency and avoid legal actions. Redevelopment premiums are more likely to succeed if they:

  • Provide the property owner or tenant with some of the increased wealth that the new redevelopment project will generate. This will require the involvement of a shrewd financial deal-maker

  • Compensate, financially or otherwise, for “intangible elements” lost by the relocation (e.g., the rhododendrons, yews and plaque mentioned above). This will benefit from a negotiator with superior inter-personal skills.

Where is the money going to come from? The relatively high costs of downtown land already require that financial incentives such as tax increment financing, payments in lieu of taxes, land write-downs, etc., be made available if many redevelopment projects are to be financially viable. The costs of redevelopment premiums — especially in small and medium-sized projects having limited density and hence limited income potential — may require the use of new financial tools.

One of these may be giving current property owners equity stakes in the redevelopment projects that will be built on their properties. The ability to reach a timely agreement on the current values of their properties will likely be critical to the success of such ventures.

Many downtown districts have the capacity to issue bonds through their municipality which are paid off from the districts’ assessments. For example, a district paying about $45,000/yr for 20 years might bond for about $500,000 at a 6.5% interest rate. While $500,000 is not a princely sum, it often can be leveraged and might help make three or four redevelopment projects viable.

Also, there are what some call “exactions.” A community might find that hefty redevelopment projects capable of generating large revenues and big increases in municipal tax revenues are occurring along the municipality’s periphery or in very solid sections of the downtown. The local government might negotiate for such a project to donate $50,000/yr for 20 years — which adds up to $1,000,000. For a shopping center with annual revenues over $100,000,000 a $50,000 exaction should be more than affordable.