Category Archives: Small Merchants

NOT JUST FOR TWITS: OUR ASSESSMENT OF TWITTER

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I have been using Twitter for almost two months now and I am coming to a number of observations and conclusions that I hope downtown business operators may find of interest and use. Some of these conclusions and observations should be treated as those of a relative newbie to Twitter, someone who is still learning and trying to figure out the best ways of using it for his business and how it might be used by others. They are being presented on the assumption that if you also are a Twitter newbie, you probably will be facing similar challenges and rewards.

However, my views are not like those of the ardent Twitter “fanboys” who account for so much of the writing about it. I am less concerned about detailing how Twitter works –there are lots of sources for that — than evaluating how it can achieve key marketing objectives such as  relationship-building, especially maintaining and growing apostles, finding and driving potential new customers, etc. Moreover, my concern is how Twitter might strengthen firms with downtown locations and not how it can free them from their geographic locations.

My basic take-away is that Twitter definitely has very significant potential utility, but overwhelmingly only when it is tied to websites, other social media such as Facebook, and traditional face-a-face activities.

1. Twitter is not just for Twits– it’s a useful way to get and distribute information. Until I really used it, I had ignorantly dismissed Twitter as mainly a communications vehicle for vain, egotistical, self-indulgent TWITS who thought that everyone should know about their most recent activities, be they a meal, a purchase, going to a movie, sex, or a bout of flagrant flatulence. And while it is true that I have had quite a few people trying to connect with me on Twitter (you can block them) who either appear to be in the porn industry or are prone to tweet pious platitudes and dull observations, I also have found that many tweets have led me to a lot of very valuable information and that my own tweets are an exceptionally easy and low cost way to distribute or highlight information that I feel is interesting and of real import and value.

2. The vast majority of my friends, family, and business associates/contacts are not on Twitter. This may be a function of my age and social network — few of the people I know are on either Twitter or Facebook and many of those who are only allow limited access. My tweets are now being followed by 42 people or organizations, of which I knew about 12 prior to joining Twitter. Only two of DANTH’s major recent clients are among them. Furthermore, none of the client prospects we now are trying to cultivate are among them.

On the other hand, many of our Twitter followers are organizations we are very happy to establish relationships with and that can add power to our marketing efforts. Since we also follow them we are often learning from them as well. We look forward to attracting many more of them. But, we do not know who we are reaching within these organizations and whether any tweets are redistributed internally. In addition, I tweeted about a posting to the Downtown Curmudgeon blog, which was retweeted or mentioned in other tweets. As a result we had a very large number of new visitors to the blog and a lot of them looked at other pages on our website. But, most importantly, so far — and it is still very early — that increased website/blog traffic has not translated into new business.

3. How, then, does Twitter now fit into DANTH’s marketing strategy?  DANTH, Inc is a relatively small, boutique consulting firm. Our marketing strategy has always been predicated on the effective use of limited resources, which has translated into a focus on repeat business and a very targeted cultivation of potential clients. In that way we are very similar to many downtown merchants. So far, Twitter does not seem to mesh with that strategy except in one marginal way. We find that many client prospects visit our website and use the Internet to confirm the word of mouth reports that originated their interest in us. DANTH’s activity on Twitter may become an additional resource for us in that confirmation process.

DANTH’s presence on Twitter is taking us in a new, more amorphous and more untargeted than we like direction. We are used to targeting specific organizations and executives in them. So far, with a limited list of followers, we are depending on using Twitter’s hashtags –#s — to target our tweets to people interested in certain topics like downtowns, revitalization and economic development. We continue to tweet because:

  • Very frankly, it is so easy and low-cost to do
  • For many years we have been doing (and continue to do) something similar via email blasts to a targeted mailing list
  • Of the increased visitation Twitter has generated to our blog and website.

4. Where we would like to go with Twitter…and where we probably will go with it. Our biggest objective is to figure out if we can use Twitter as a quicker and more efficient tool to communicate with people we are now reaching through our email blasts. But, I strongly suspect that email is much better suited to our marketing strategy and its primary objectives. One of those primary objectives is long-term relationship building, something for which Twitter seems to be ill-suited because, at best, it’s a quick, electronic one-way sharing of information and, at worst, someone talking at you who is full of pieties, platitudes, inanities, garbage and/or outright crap.

But, what Twitter has already done for us is a good indication of how it can help us in the future. Twitter can send new people to our website and blog and if they then decide to contact us, we can try to build a relationship with them. This would be a complicated and indirect causal path for Twitter to impact our new project assignments and one where much attrition can be expected between the tweets and potential clients contacting us. It would be akin to gold mining — you process a lot of earth to extract an ounce of gold. As long as tweeting is not a resource hog it probably will be worthwhile.

We are also using Twitter to feed content regularly and frequently to our LinkedIn and Facebook pages. It already earns a lot of its keep because of this.

The big payoff in relationship building could happen if Twitter could send people to our Facebook page and if that page could be a place for discussions and community-building around downtown issues and problems. For our Facebook page to play that role we need a lot more friends and attracting more friends is difficult because the vast majority of the folks we are now cultivating are not on Facebook and quite a few have overtly proclaimed an aversion to joining.

Twitter does seem to be useful if you are targeting at the level of groups and subject categories — such as small businesses, economic developers, your town or community, downtown revitalization, poverty, etc. — but less so if you are trying to reach lists of specific individuals. With the former, current Twitter users who identify with those groups or categories can find you through searches and your use of hashtags. With the later, the specific people you are targeting must be on Twitter, find you and sign up to “follow” you.

5. Arguing by analogy, for retailers, Twitter is probably not as good a tool as email and other tools for relating to existing store apostles and attracting new customers from local markets. I am a great believer in the value of attracting and maintaining store apostles — very frequent shoppers who like a store so much that they tell their family, friends and neighbors about it. Initially, I had thought that Twitter might be a good tool for quickly communicating with them, but I quickly saw that this was not the case. Store apostles and frequent customers are discreet individuals and retailers who are paying attention to them probably have their email addresses and possibly other contact information. Email provides an existing, fast and effective communications channel to them and one that is not limited by a 140-character limit on messages. The merchant can easily send information to these key customers about new merchandise, sales, store events, etc. Twitter’s advantages are hard to discern, but its costs in terms of limited message length and the need to have customers sign on as followers and possibly even to join Twitter are evident.

Downtown merchants in their cultivation and leveraging of store apostles may also want to provide financial incentives in the form of coupons, which is a function that is sort of  possible on Twitter, but in a way that to me seems far from optimal. In this regard, the SaveLocal service from Constant Contact has caught my attention because it is focused on meeting the operational needs of small merchants and helping them to capture more local shoppers. Constant Contact rewards current customers for sending a store’s discount offering on to members of their electronic social networks.

Ben Burgess, of NorthStar Advisers, has been guiding DANTH’s social media reassessment. He counsels that Twitter can drive a lot of new customers or clients to a firm’s website or Facebook page which can be structured to build a customer community for a store or a service provider. If so, it could be another very valuable tool for cultivating and leveraging store apostles. But, Facebook is not the subject of this article and is still something I have a whole lot to learn about. More about it in a later posting.

But, please note that in this process Twitter is not the place where the customer cultivation and relationship building that produces apostles occurs – that is on the Facebook page. Twitter’s function is more akin to an input mechanism that attracts and steers new customers to the electronic apostle-building venues.

Of course, for many downtown merchants, their brick and mortar stores and their “backdoor” off-site activities will provide critically important face-to-face opportunities to maintain and attract store apostles.

6. If you are a small merchant who is selling very unique merchandise or product lines, Twitter may be very helpful. If you are making and/or selling unique ceramics, brooms, aprons, candles, jewelry, enactors clothing, duck decoys, etc., or selling out of production patterns of dinnerware and silverware or are one of a few retail outlets for a furniture or clothing designer, etc., then reaching a large national customer audience is probably of considerable value. Even low penetration of this large potential customer base could yield very significant sales for a small merchant.

Here Twitter may well be very useful, especially if the tweets can drive more visits to a merchant’s website or Facebook page.

It seems likely that in these instances, increased sales will not be from Twitter driving more customers to brick and mortar stores, but to increased online or telephone purchases, with the merchandise being delivered to the customers.

7. For small downtown merchants with a focus on local customers (that’s most of them)…For these small merchants there is a very important and fairly well defined geographic focus. To my knowledge there is no way of accurately knowing how many Twitter accounts are within a store’s trade area or how many of those accounts are active. However, Twitter does have a search function that might help a merchant gauge in a ballpark way the magnitude of the number of Twitter users within a 1, 3, 5, and 10 mile ring-defined trade area who may have tweeted words associated with their merchandise or services. In this regard, Rich Brooks at The Social Media Examiner has written about how Twitter’s advanced search function can help restaurants, a chiropractor, florist or pet shop build their Twitter audience (see http://bit.ly/w6IcPw). Following up, I did an advanced Twitter search for tweets that originated within a 5-mile radius of Morristown, NJ that contained the words flowers or bouquet. Eight tweets between March 11 and March 17 were identified as meeting my search criteria. Several of them appeared to be from merchants offering goods or services. Others appeared “advisory”. Few appeared to be from likely shoppers interested in buying flowers. A similar advanced search focused on Cranford, NJ produced 23 unique tweets, of which a lot contained “suggestive language” and a few indicated possible potential customers. The results probably would be more productive if the search was done just before Mothers Day or Valentine’s Day.

For downtown merchants, shoppers are close enough that most will probably want to do a walk-in store purchase, so an important objective of tweeting is probably to drive more customers to their stores.

It seems to me that it is too intrusive and therefore somewhat foolhardy to ask customers for both their email addresses and to sign up as followers on Twitter. Of the two, email still seems the more powerful, versatile and useful option. However, merchants most likely will get the email addresses from shoppers who are already coming to their stores. Twitter, on the other hand, has the potential of reaching shoppers who have never been to the store or may not even be aware of it without them knowing the stores’ names or handles.

For downtown merchants with geographically limited market areas, tweeting will be akin to a brief broadcast to an audience of unknown size and fairly unknown characteristics, though:

  • Trade areas with denser populations will likely have more Twitter accounts
  • There seems to be a general supposition that younger, better-educated folks are more likely to be active on Twitter.

Given this scenario, it would seem that the best path for these merchants is to try tweeting if the costs of doing so are not too time-consuming or financially burdensome and the merchant feels at ease doing it. It need not be complex. For example, a Twitter account named Red Bank SleepShoppe in Red Bank, NJ tweeted the following:

  • Visit our website to see some of the brands and products we carry! -http://ow.ly/9urtD
  • If your current mattress is over 8 years old, it’s time for a new one!

Also, the potential shoppers engaged on Twitter as well as their concerns and interests will likely vary day by day. So a multi-tweet effort by merchants over an ample time period will probably be much more effective than a tweet or two over a day or two.

After a few weeks the merchant can see what the response is and adapt his or her Twitter use accordingly, perhaps even dropping it entirely.

Very important: It also seems likely that merchants will be more effective with Twitter if they have an effective website and/or Facebook page that the tweets can send shoppers to. On the simplest level, tweets do not have room for a lot of contact info. Nor are they a venue for relationship building.

Finally, tweeting is easy to do with few direct financial costs. That helps make giving it a shot worthwhile.

CLOSE, BUT NO CIGAR: DOWNTOWN MERCHANTS AND CAPTIVE/DAYTIME MARKETS

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The Problem. Downtown economic development 101 long has taught that one of the strongest competitive advantages of downtowns is their multi-functionality, which leads to a number of “captive” daytime market segments, and stimulates multi-purpose and multi-destination downtown trips. These market segments –e.g., workers, students, hotel guests, etc., — are coming to the downtown continually, so merchants do not have to do anything to attract them to their commercial district. It also has long been thought that the merchants could then just concentrate on getting them into their stores and selling to them. Yet, in almost every community DANTH, Inc. has worked in or pitched a proposal to, local retailers were not capturing the sales dollars they should from nearby office workers, hospital workers and visitors, students, hotel guests, etc. Based on my conversations with other consultants and many district managers this problem is fairly widespread…and possibly, even probably the norm.

Lack of Market Segment Awareness and Knowledge.  Many of downtown merchants simply lack an awareness of these captive consumer markets or know very much that is useful about them. For example, one eye opening presentation at the recent conference of the Wisconsin Downtown Action Council reported on research by Bill Ryan and Jangik Jin at the University of Wisconsin Extension that indicates important captive daytime markets are not limited to large cities, as often supposed, but can be found in communities with populations as small as 2,500:

“Overall, approximately one in five Wisconsin jobs are affiliated with businesses that are located downtown.  A very small city with a population of 2,500 will, on the average, have close to 1,000 employees within a half-mile (a 10 minute walk) of the middle of downtown.  A larger city with a population of 50,000 will, on the average, have over 5,000 employees.  These figures indicate that there is a high density of employment in these small geographic downtown areas.  Clearly not all are employed in the shops that line Main Street.  Instead, they are employed is a diverse mix of businesses and organizations within and around the retail core.”[i]

While the Ryan-Jin study just focused on towns in Wisconsin, the picture it paints seems to fit the other states I have lived and/or worked in. Consequently, I bet that if similar studies were done in other states, they would reveal some variation, but substantially comparable results.

The audience’s reaction indicated that they were certainly learning something new and I doubt if nationally many downtown merchants in small (or large) communities know how many people are employed nearby. The Ryan-Jin study is also unique because its focus is on “employment” and not just office workers, white-collar workers, knowledge workers or creative types. They include the blue collar and uniformed workers that I have seldom seen targeted by downtown revitalization plans, but who account for most employees in a whole host of small and medium-sized downtowns.

In many other downtowns we have worked in, neither the downtown organization or their local merchants knew how many office workers were nearby and how they were clustered. Nor did they know much about office worker consumer behaviors, e.g., how often and when they shop, what they shop for. Much the same is true for the student and hotel guest market segments and certainly true for blue collar workers.

Poor merchant awareness and knowledge constrains their ability to target these potential shoppers, to merchandise for them and then market effectively to them.

The Weak Magnetism of Many Retail and Food-Related Destinations. Unsurprisingly, the ICSC’s studies of downtown office workers have shown that office workers will spend more in districts that have strong retail offerings than in districts having fewer shops and less desirable merchandise. These findings also speak to a more general principle, the stronger the magnetism of the retail destination and eateries, the more likely they are to get shoppers to:

  • Go out of their offices, hotels, schools, etc.
  • Walk longer distances.
  • Shop at inconvenient times.
  • Frequent their establishments.

Retailers are clearly unlikely to have much magnetism  if they:

  • Provide customesr with an unappealing in-store experience.
  • Have lackluster product assortments and/or unattractive store environments.
  • Offer poor customer service.

Unfortunately, a lot of downtown retailers fall into the low magnetism category. Great proximity and consumer desperation may produce sales, but for them meaningful penetration of these captive market segments is unlikely unless they significantly improve their merchandise, store appearance and operating procedures. In my experience some non-magnetic merchants may be capable of making such improvements, most are not.

It’s Often Tough to Access These Market Segments: Just because these potential customers are downtown does not mean that they are within easy walking distances of retailers. For example, retailers that are farther than a 5-minute walk from office workers and 10- minutes from hotel guests are unlikely to gain a lot of their patronage. This is a very likely problem in dispersed downtowns, especially those that are composed of several nodes, not just a central core. One downtown that we recently looked at had four of these nodes, another had three.

Commuting students, who often have jobs or heavy household responsibilities, are typically difficult for merchants to capture. Their time pressures, frequent after 5:00 p.m. class hours and campus locations distant from the downtown core makes it very hard to grab their attention and dollars. The retailer must be very close and really have what the student needs.

Today, many companies try to keep their workers from leaving their office buildings during the workday. As inducements, they provide cafeterias, subsidized meals and concierge services to do their shopping and errands for them. Some just keep the workload pressures so heavy that going out seems impractical.

As Ryan and Jin noted, blue collar workers typically are not on the primary downtown streets, but in more secondary and peripheral locations. Their lunch hours may be brief and they tend toward not leaving their workplaces. Many will brown bag or be serviced by a “food truck” or “ordered in” food.

Downtown retailers must be open when hotel guests are prone to shop in their stores and these opportunity windows can vary with the downtown:

  • In Morristown, NJ a huge number of hotel guests are attending conferences that normally “set them free” after 5:00 p.m. By 5:15 or 5:30 they may be outside looking for things to do, including shopping. That does not give them much time to get to and shop in the stores that close at 6:00 p.m.
  • The skiers staying in hotels near downtown in Rutland, VT will be on the slopes all day and available for dining and shopping late in the day and early evening. But, if the shops are not open….
  • In Long Island City, NY, the guests at the new cluster of hotels are primarily tourists who will spend much of the day and substantial portions of the evening in Manhattan. As a result, the best time for local merchants to capture their dollars may be in the morning.

The Retailers’ Expectation That Customers Come to Them. The problems of accessing these market segments potentially can be overcome, but that will require merchants to implement targeted operating procedures such as altering store hours or, most importantly, reaching out and interacting in some way with these potential shoppers in their offices, schools, hotels, factories, etc.

Unfortunately, many of today’s merchants have been acculturated to expect that their customers will come to them.

Overcoming This Impasse. Merchants can have vastly greater success with these captive daytime downtown market segments if they adopt the multichannel techniques that are detailed in my recent DANTH Research Paper which is available at no cost at:http://danth.com/storage/pdf/Multichannel.pdf .

I do not want to again go over here the ideas presented in that paper, save for this: the key change is that a real multichannel strategy guides and enables downtown merchants to interact with customers away from the brick and mortar stores. If they are to win more sales dollars from their district’s captive markets, that is precisely what they have to do.

 

[i] Bill Ryan and Jangik Jin,  “Employment in Small City Downtowns,” Downtown Economics, Issue 174, October 2011  http://bit.ly/y1bkc2

 

 

Downtown Multichannel Retailing

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DANTH, Inc. has just released a research paper I wrote on downtown multichannel retailing.  I prefer to think of it as backdoor retailing, with electronic and non-electronic variations. In any case, the topic is important because downtown retailing is undergoing an enormous change — one that will not be reversed even when the economy recovers from our Great Recession — towards multichannel/backdoor retailing. Downtown merchants and leaders who do not adapt to this new paradigm will be left behind, more dross produced by capitalism’s creative destruction.


You can download a free copy of the research paper at: 
http://danth.com/storage/pdf/Multichannel.pdf

N. David Milder

Some Interesting Research About E-Commerce

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The Online Articles

A May 5, 2011 posting on ClickZ,  ”Is Facebook Marketing Behind Macy’s Online Sales Jump,” suggests that that Macy’s efforts to pick up Facebook “likes”, which in 2011 grew to 800,000 was responsible for the 50.3% rise in the Macys.com and Bloomingdales.com monthly sales. The article also mentions that Foursquare and Twitter were used in this campaign.


A May 10, 2011 posting to the Business Insider by Pascal-Emmanuel Gobry, “Turns Out Social Media Marketing Doesn’t Work” reports on recent research done by Applied Predictive Technologies. The research tested “how much location-based services like Foursquare and Facebook Places can help local businesses.” It found an impact that is just “close to 2%.” (There is no clarity as to what the 2% refers to in the article, e.g., sales, visits, etc.”

Gobry advises Foursquare investors not to panic because the used social media may not have had enough time in the test to work and “Right now, social media marketing and advertising is in the experimental phase. We don’t really know what works and what doesn’t, fumbling in the dark.”

I consider customer service as a critical marketing tool, so another online article that recently caught my eye was by Joe Light and posted on April 25, 2011 to the Wall Street Journal’s website. Titled “With Customer Service, Real Person Trumps Text,”  the article reports on a large national survey conducted by American Express to find out how consumers want corporations to provide customer service. The survey found:
  • 90% of the respondents wanted customer service handled by live representatives over the telephone
  • About 50% like customer service delivered by online chat
  • Just a little more than 20% would use social networking sites
  • 20% said they would use auto-response phone systems
  • 70% said they would spend more with a company that provides good customer service , an increase from the 58% that felt that way last year.
My Take-Aways

I think Gobry hit the nail on its head, but that his remarks apply not just to social media marketing, but substantially to internet marketing in general. What is obvious is that large, savvy corporations with ample resources and large technical staffs  such as Macy’s and American Express are still trying to discover what really works and what doesn’t and many of them are still “fumbling in the dark.” 

The small merchants that populate so many of our downtowns lack the resources and skilled staffs of the large corporations and the results for them of a failed online marketing campaign are probably more dangerous. Advocating their involvement in unproven and for them complicated and expensive internet ventures is irresponsible. Yet, an internet presence is fast becoming an existential imperative for all merchants, be they large or small! Downtown organizations that want to foster merchant presence on the internet in most cases need to focus on programs that have some real proof of effectiveness and that make merchant involvement less complicated and more affordable.  I have always been fond of the Keep It Simple, Stupid (KISS) approach to program development and to my mind it applies here. For most small downtown merchants small, affordable, simple to do and easy to maintain steps may be the most viable.

Of course, there are always the exceptions, those marvelous exceptions among the small business operators. At the extreme they are the true innovators that may start in garages, small offices and small shops and create firms like Apple, Microsoft, and Limited Brands. While small business innovators of this high caliber are relatively rare, my experience suggests that there are 5% to 20% of a downtown’s merchants who may be open to some innovation and willing to take some risk. Should downtown organizations focus their efforts on this group or do they need to develop two-tier programs, one level for the more innovative-prone merchants, the other for the average merchant?

N. David Milder

The Use of the Internet by Downtown Organizations and Businesses

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About a week and half ago I went to a workshop put on by Downtown New Jersey that focused on the use of web sites and social networking media such as Facebook. While I learned a lot and thought the presenters did a good job — they certainly were enthusiastic — I still came away with my major concerns being unanswered.


Being Able to Afford the Time, Money and Skill Acquisition Needed to Create and Maintain a Website. For many years I have heard several other downtown revitalization and business development experts strongly recommend that downtown organizations and individual downtown businesses have attractive and effective websites. I certainly concur with the potential positive impacts of effective websites. Moreover, I agree that organizations, with say $300,000+ in annual revenues, can have at least a useful website and that it gets easier for them to have a really effective website as their budget increases.


My problem is: Can most small businesses and small-budget downtown organizations really have effective websites? Many small and medium sized downtowns have numerous businesses that are in the $150,000 annual sales range or perhaps even less. With few, if any, full-time paid employees and modest revenues, these shopkeepers usually work long hours and may not have either:

  • The computer skills needed to create and maintain a website
  • Or the time to acquire them
  • Or the funds and networking skills needed to hire an outsider to build and maintain the website.

These problems can be particularly acute when it comes to a small merchant  building an “e-store.” The chores of keeping the online inventory current and packing and transporting the sold merchandise can be daunting.  

Of course, what most downtown managers also know is that getting their small merchants to advertise is very often analogous to pulling teeth. So, if they are resistant to shelling out less than say $100 for a co-op newspaper ad, you can expect that getting them to even entertain a website they fear might cost in the thousands of dollars is likely to be far more difficult. Moreover, if they cannot have online stores, they may doubt the value of a website that is simply something akin to a fancy directory listing.

Much the same is true for small downtown organizations — small budgets constrain what can be done — but, my online observations strongly suggest they have both better skill sets for the  electronic media and a greater willingness to spend a significant portion of their budgets on them than the small merchants. Many of their sites are good at promoting their downtown events and sharing news relevant to the downtown community that the local media might be overlooking. They  usually have an online business directory, while some even try to provide a webpage for each business. 


But, too many fail to take on business development functions by providing essential, easy to find and easy to use information that would be useful for a business looking for a new location. This can range from demographic data to information about prevailing rents and the town’s permission and approvals process. 


While small businesses probably will always lag in the creation and quality of their websites, there are reasons to believe that in the coming years there will be significant improvement among them:

  • The younger among them are more adept and comfortable with using computers and the internet — and with time the proportion of the internet capable will rise and be dominant
  • There are website hosting services appearing that make the creation and — most importantly — the maintenance of a website much cheaper and easer to do. They use templates and modules to achieve the fast, easy and affordable website, but they also bound a site’s creative potential.  We are redoing our DANTH, Inc website, under the guidance of our website consultant 180 Interactive,  and using one of these services. I’ll report on the experience in a later posting.

When Is Electronic Social Networking the Answer? At the risk of sounding like an electronic Luddite, I am having a difficult time figuring out how something like Facebook or Twitter could provide real added value in the marketing of DANTH. Though I can see their value to some large downtown organizations and consumer products companies, I keep feeling that many small business people are in a similar position to mine:

  • I barely have the time to operate my business and still write a blog, maintain our website and write periodic email blasts. Where will I find the time and energy to also deal with a Facebook presence, which to me seems like another resource demanding website? 
  • My company does not generate enough “news” to keep a constant information flow through any communication channel  
  • Our clients do not usually come to us from the web, but through word of mouth. They then do go to our website to get more information about us and to “confirm” the positive messages  they have received from other sources. What added value can Facebook offer that has a sufficient cost/benefit justification?
  • The times have been economically desperate and in such conditions people often look for “silver bullet” solutions. The faddish popularity of Facebook and Twitter suggest to me an unthinking groping for magical answers to tough problems. 
I think that there is a real resource threshold for small businesses to properly utilize websites, blogs and the social networking platforms. To do all of them properly and advantageously demands proper staffing and the resources to pay them. To do just one properly takes skill and effort — and time.

Our firm’s approach to the design of our website and this blog is based on a set of marketing objectives we want to achieve. So far, we cannot see any objectives that a Facebook or Twitter presence could help us achieve. Perhaps, if we had DANTH events or if we sold my books directly from our website we would have a different assessment of the electronic social networking opportunities.  

My fear is that too many downtown organizations are doing Facebook and Twitter without having any substantial strategic justification, but simply because more and more downtown organizations are doing it. I fear, too, that many small businesses are falling into the same trap.


Are We Taking Our Eyes Off of the Real Prize?  A week or two ago our friend and strategic partner Mark Waterhouse of Garnet Consulting Services sent us this link to an article:

http://www.nhregister.com/articles/2011/04/10/business/doc4da114e0961da239903377.txt

It is from a New Haven newspaper and it details how the merchants in downtown Guilford, CT have prospered right through our nation’s Great Recession. No where does it mention the merchants’ slick use of the social networking media. But, there are vivid descriptions of merchants who work hard to have the right merchandise for their customers, who provide a deep level of customer service and who avidly recommend other nearby merchants to their customers. All of this is perhaps just a part of “Being A Successful Merchant 101,” but apparently they are actually doing it in Guilford. The part of the story about the merchant referrals had a particularly strong resonance for me because:
  • I have become increasingly convinced that this is one of the most effective and inexpensive ways to do cross marketing in a downtown
  • I have also become convinced that most downtown organizations do a lousy job of encouraging cross marketing.

Furthermore, I have not heard of any similarly effective downtown cross marketing effort that is based on electronic social networking. 


The Bottom Line. I am all for e-marketing and using websites, blogs, social networking platforms, web photo galleries, etc., as long as they can fulfill an organization’s strategic objectives and fit within its resource constraints. Most importantly, I fear that downtown business operators and their downtown organization’s leaders are shifting their attention and resources so much to the web that they will forget the importance of mastering the non-electronic ABC’s of being a successful merchant. If you have dull merchandise, fail in customer service and have not learned how to work with your fellow downtown merchants to generate and SHARE customer traffic, no amount of adept electronic marketing will save you…or your downtown.  

The Arc of a Niche: The Bowery’s Home Lighting Niche

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The key intersection for The Bowery’s home lighting niche, which is about 50 years old.



The Bowery Mission, a remnant of a famed, if unsavory, past



Some home lighting shops on The Bowery 1 



Some home lighting shops on The Bowery 2



Some home lighting shops on The Bowery 3 



My initial thinking about retail niches was greatly influenced by my experiences shopping for antiques in Waynesville, OH and for lamps in shops along The Bowery in Lower Manhattan. It has been almost 50 years since I made my initial visits to these places. Their antiques and home lighting niches still exist, though they have changed over the years. 


Waynesville is about 600 miles away, so I have not been there in many years. But, a few years ago, I did some telephone interviews. Though the antiques niche there reportedly remains strong, it has changed because the industry as a whole has changed. Two significant changes are: 1) a lot of merchandise is sold on consignment in large antique malls, where the dealers do not have to be personally on site and 2) internet sales.
The Bowery is much closer to home, about an hour away via public transportation.  When I first visited the area, back in the 1950s, it was best known for its run down bars with cheap drinks, poor alcoholics down on their luck and a collection of flop houses. When I next returned to the area in the 1960s it was to look for lamps in a cluster of home lighting stores. By the late1980s,  this home lighting niche had grown enormously, with most shops between Houston Street and Canal St seeming to sell home lighting merchandise. On a visit in the 1990s I estimated there were between 75 and 100 ships in this niche. My wife and I felt that too many them appeared to be indistinguishable from each other in size and merchandise and that consequently the whole niche seemed less attractive.
Since then the neighborhood has changed significantly. Property values have increased and so have the commercial rents. The Bowery is showing signs of gentrification. The cheap bars and SROs are long gone. Chinatown has expanded enormously. 
The merchants have also changed. The number of home lighting shops is now back down to about 20 and they are clustered on a two block stretch going south from Delancey Street. A restaurant kitchen equipment niche has emerged.
The largest and best known home lighting shops are among those that remain. Though much reduced in numbers, the niche is still relatively strong. A 50 year run is not bad for a retail niche and it certainly is not yet over. The niche remains a regional draw for shoppers looking for home lighting.
I hypothesize that the contraction of this niche was due to a collection of factors:
  • Rents became unaffordable for most of the small, marginal shops. Given the huge increases in Manhattan’s retail rents it is doubtful that the borough will ever again see a retail niche of the size this home lighting niche reached.
  • Some shops just aged out — the owners retired and their businesses ended with their departures
  • Too many of the shops could not differentiate themselves except on price — and many could not afford to compete in this manner
  • A new niche was competing for the available retail spaces.

It is also fair to say that this niche has helped revitalize a badly decayed, disreputable area.

AFFORDABLE DOWNTOWN RETAIL RENTS

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Introduction. As we slowly emerge from the Great Recession the time has come for downtown organizations to work hard on encouraging small independent retailers to seek affordable rents and for landlords to offer them. If they do not, downtown retail will contract and street level storefronts will be occupied even more by financial and personal service operations – or remain vacant for long periods of time.

True, in many downtowns retail rents have declined during the Great Recession, often substantially. In one I recently visited, for example, asking retail rents have dropped from $45/SF to $30/SF and in some instances even $25/SF. But, as we creep out of recessionary conditions, it is critical that in most downtowns retail rents do not regain their unaffordable levels.

In the new normal, small downtown retailers will be facing increased pressures to keep their operations lean and mean because capturing sales from today’s deliberate consumers is far more difficult than from the abnormally free-spending shoppers of the 1990s and 2000s. One budget line item they can focus on is the cost of the spaces they lease for their stores. This is a major long-term business expense and it is important that these retailers do not pay more than they can afford. It is also a business cost where “newbie” retailers dominate those going astray, though badly inept or unscrupulous merchants also tend to pay a lot more than what savvy merchants would deem affordable.

Looking at the other side of the coin, it is also in the interest of landlords to offer rents competent retailers can afford. In the new normal, far fewer stores will be opened by national chains and, among those, a smaller percentage than in the past will be placed in downtowns. Landlords, as a result, will need many local independent retailers to fill their storefronts. This will also be true to a significant degree for those who have built new mixed use buildings with expensively constructed ground floor storefronts. Additionally, as their rents reach ranges considered unaffordable by savvy merchants, the more likely they are to attract incompetent or sleazy businesses and also more likely to have storefronts stand vacant for long periods of time.

A useful formulation for determining an affordable retail rent is roughly 15% of the shop’s annual sales. DANTH’s merchant surveys and personal interviews with merchants over many, many years as well as the work of other firms, such as Urbanomics, found that downtown merchants generally felt that they could afford total rent costs that were 8% to 12% of their annual sales. However, more recently merchants say they are OK with 15%. While there is certainly some error factor present here, 15% is probably plus or minus just a few percentage points off the correct number. The major thrust of the analysis presented below is not affected by this error factor.

In a typical medium-sized downtown, independent retailers with annual sales of $500,000 to $1 million are relatively rare. Most independent downtown retailers would be quite happy with sales in the $300,000 range and joyous with sales around $450,000. Though in large downtowns the sales happiness range can be higher, the 15% rule applies everywhere, so I’ll stick with the retailers in medium-sized downtowns to simplify my argument.

The table above depicts information about:

  • How much rent is affordable to retailers with $250,000, $300,000, $350,000, $400,000 and $450,000 in annual sales. You can do the calculations for higher annual sales
  • How many square feet of space this “rent money” can buy at various prices per square foot.

The table also shows how with increased rents more and more of a downtown’s most successful merchants cannot afford to occupy the amount of space they might even minimally need for their operations. Look at how quickly even “small” spaces in the 1,500 SF to 2,000 SF range become unaffordable. At $40/SF not even a retailer with sales of $450,000 can afford a 2,000 SF; at $50/SF even a 1,500 SF storefront becomes out of reach. Of course, for the $300,000 shopkeeper, that happened at lower rents: a 1,500 SF shop is unaffordable at rents of $31/SF and 2,000 SF at $22.50.

Affordable rents should be tied in with balloon leases, where rents increase at an agreed upon rate as the retailer’s sales grow. Some savvy downtown landlords are already using balloon leases.

To The Groaners. To the downtown managers and Main Street managers who groan that is impossible to deal with landlords:

  • Dealing with downtown landlords and doing it effectively is part of your job. If you are not doing it, start doing it. If you do not know how, learn how. If after all that you still can’t deal effectively with landlords, get another job.
  • Every occupation has jerks; but they also often have a lot of reasonable, effective and even innovative people. This applies to landlords, too.
  • One thing is certain: if you do not try, nothing will happen.

To landlords and developers who groan that they need high incomes from their new and expensively constructed retail spaces to pay off their loans:

  • You are big boys, you like to brag that you are big boys, so act like big boys
  • You either goofed in your calculations or you really did not understand that in most downtown mixed use projects outside of places like Manhattan and downtown Chicago, etc., the residential and office rents, probably for some time, will have to subsidize the retail spaces. This is especially true of unproven, revitalizing downtown locations
  • Given the current economic conditions your options are really either affordable rents that will diminish your losses or long-term vacancies and continued lack of retail rental revenues

To landlords who believe they should get market rate rents as defined by the highest asking rents they’ve heard about in the district:

  • Your unaffordable rents are likely to produce vacancies, because so few accomplished retailers would be interested, or perpetual churn, because you are likely to attract inept or schlocky merchants who are prone to failing or disappearing
  • This will affect the resale value of your property and this is not a great time for any commercial property
  • Have you really calculated the difference between the income that an affordable rent will yield and the zero dollars you will likely reap from the months your stores stay vacant because you want higher rents?

N. David Milder

Backdoor Retailing

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My October 29, 2009 posting on the new normal for downtown retailing prompted a number of requests for additional information about “backdoor retailing.” I am very happy to comply since, for some time now, that has been a topic I have wanted to write about, but just never got to.

Advantages and Disadvantages

Downtown merchants with backdoor operations have two customer streams and revenue sources. First are the walk-in shoppers they draw from the downtown’s pool of visitors. Every downtown business can draw from this visitor pool. Firms with backdoor operations also:

  • Sell to local businesses, organizations and even municipal agencies. These transactions and relationships fit in well with downtown sustainability strategies.
  • Sell to consumers, but out of their stores, and independent of walk-in traffic.

My observations suggest that firms with significant backdoor operations are usually stronger and stay in business longer than other firms in their downtowns. Moreover, these merchants are not inclined to passively sit on their duffs and just wait for shoppers to come to them, but they are more inclined than other merchants to be savvy about social marketing, both face – a -face and online (the subject of a future article).

This is not to say that they are untouched by economic downturns, as restaurants in NYC with large corporate catering businesses have recently demonstrated. In addition, the reduced dependency on downtown customer foot traffic potentially makes these firms less tied to their downtown locations as their backdoor operations grow. However, favorable downtown quality- of- life conditions can reduce the proability that they will actually relocate.

Traditional, Non-electronic, Backdoor Operations

Today, there are electronic and non-electronic variations on backdoor operations. But, the best way of conveying what these operations are like is to provide some examples of the traditional, non-electronic variety:

  • A retail tobacco shop in downtown Rutland, VT, that also was a distributor of tobacco products to merchants in Rutland and the surrounding region
  • A vitamin shop on Bergenline Avenue in West New York, NJ that both manufactured and distributed vitamins to merchants in the region
  • Paint stores in Englewood, NJ and West New York, NJ that have very large building contractor clienteles
  • A women’s clothing shop that took its wares to model and sell at local women’s clubs, PTAs, etc. (Unfortunately, while I remember reading about this on the web, I can’t find the citation in my files.)
  • Sporting goods shops here in Kew Gardens, NY and elsewhere that sell equipment to sports teams, leagues and schools
  • The plethora of restaurants in most downtowns doing off site catering
  • The Carvel in Bayonne, NJ – and I image elsewhere — that sell desserts to local schools, social clubs, etc.
  • A bakery in Woodbury, NJ, that supplied many local eateries with donuts, danishes, etc.
  • A well-known fish market in Maplewood, NJ that supplies over 40 restaurants
  • Nevada Meat Market that supplied many restaurants in Manhattan
  • A fruit and vegetable shop in Kew Gardens, NY that supplied local restaurants

Many downtown service operations also have backdoor components:

  • A dry cleaner in Kew Gardens does uniforms and work clothes for businesses throughout NYC
  • An upholstery shop in Washington, NJ that does work for well-known furniture stores in Northern New Jersey
  • Some hair salons and barber shops that serve non-ambulatory clients in their homes, nursing homes and hospitals

This list of examples of back door operations, though limited in length, is sufficient to show the broad gauge of their potential– and that such operations are certainly not confined to food products.

Online Backdoor Operations

The internet has brought a new dimension to backdoor operations. Merchants that have online storefronts with shopping carts and actual sales are engaging in electronic backdoor operations. The individual shoppers need not ever come to their stores. They are not walking in from the street. They may live in different states or even other nations and never have visited the merchant’s downtown.

On a more modest scale eBay allows downtown merchants to sell online a few items or groups of items without having to create and maintain a storefront of their own.

According to reports in the media and from downtown managers, a properly functioning web store can definitely strengthen some downtown merchants. I have seen a women’s apparel shop thrive because of their online store and I know of a collectables shop that survived through tough times because of its eBay sales.

But some perspective is needed here. Foremost, online sales make up only about 4% of retail sales. Also, most of our downtowns fall in the small and medium-size category and the overwhelming majority of their shops have modest annual sales revenues and very small staffs. Many of them may be able to create and maintain an inexpensive, uncomplicated website that provides simple information about the shop, its location and the types goods and services it sells. That might help drive some more customers into their shops. However, most cannot mount, operate and maintain a web store. Keeping the online inventory current and product shipment too often become killer tasks for small merchants. Some can do better by selling in a controlled manner on eBay. Most are probably best off not attempting electronic backdoor operations because they lack the computer skills, staff and money needed to succeed.

Cultivating More Backdoor Operations – Planting The Seed And Networking Local Businesses

While most merchants will not develop backdoor operations, my sense is that most downtowns have the potential for doubling or tripling their number. Over the years, my informal discussions with merchants suggest that more of the innovative types would try to develop backdoor operations if they simply had thought about them. This suggests that seeding the idea in the minds of the right merchants and then perhaps hooking them up with district merchants who already have successful backdoor operations might be a fairly simple and low cost way of starting to make it happen. Face to face meetings are probably a sure way to go. A low key workshop also would probably produce results – if the right merchants attend.

Also, a good starting point for many merchants is to explore what they could sell to the other businesses and organizations located in or near to their downtown. Downtown organizations can provide real help here by developing a “matchmaker” role. For example, the Long Island City Business Development Corporation’s staff has developed a role of matching the needs for goods and services of their district’s industrial firms with local suppliers.

The Takeaway

Increasing the number of strong stores is always an important objective of a sensible downtown organization. Growing the number of firms with backdoor operations can help make that happen. It should be an essential cog of your organization’s business retention program.

N. David Milder

Downtown Vacancies: Let’s Get Real

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A slightly different version of this article appeared as a Perspectives Column in the May 15, 2009 issue of the Downtown Idea Exchange

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Far too often, concern about the number of empty storefronts in a downtown reaches distorted and needlessly injurious proportions. This was true before our current recession and now it threatens to become an even more serious problem. It’s critical for downtown leaders to view the vacancy rate issue from a realistic perspective.

For example, a few years ago, when I was managing a district, the mayor and I often would go around the block about our vacancies. My protestations that our vacancy rate of 2.6% was very low, and one that most other districts would love to have, were dismissed – the mayor wanted a zero vacancy rate. I tried to explain that a zero rate actually would be unhealthy for the district because it would keep out new business blood and thus make the district stale, perhaps even ossified. This argument, too, gained no traction. And this mayor is a very bright and likeable guy.

Today, many downtown leaders and local politicians are seeing growing vacancies as omens of doom. In past recessions, DANTH Inc. had projects in downtowns where the vacancy rates were in the 18% to 20% range. Looking just at the vacancy numbers is deceiving. High numbers are not a death warrant:

  • Within a year, the downtown with the 20% rate recruited several trophy retailers and substantially reduced the number of vacancies. A few years later it was being cited as a veritable model of downtown revitalization.
  • Similarly, the other downtown reduced its rate to 12% in less than a year and to 6% after 18 months. Today it reports having few vacancies.

A recent canvass of 14 downtowns showed four with vacancy rates of 10% or higher. But:

  • Two of those downtowns had actually reduced their vacancy rates substantially during 2008 from 2007: one dropped to 11.2% from 14.1% and the other to 11% from 15%.
  • Another of the canvassed downtowns reported a 13.3% vacancy rate. On the other hand, it still had at least six new stores open, some of which promise to be strong. Moreover, a supermarket is doubling its size, a new nursing home with new ground floor retail space is about to be built, 14 residential units are being added to the floor above an existing 15,000-s.f. retail space, and McDonald’s will be renovating a 100-plus-foot façade on the main drag.
  • Most of the canvassed downtowns reported new shops were opening, even when the district managers felt the vacancy rates were much higher than they would like.

In the vast majority of downtowns a very significant proportion of the storefronts normally are occupied by marginal operations. Very often, marginal businesses are badly managed and do little to foster a positive image of the district. In a recession marginal firms have a high probability of failing. Some marginal firms are not small – many national retail chains are now out of business because mismanagement put them on the financial brink and the recession pushed them over.

The vacancies that result from this economic pruning can – and I would argue should – be viewed as opportunities. In tough times like these, there still is “creative destruction” and many district managers are reporting that some attractive new businesses are opening. If these firms survive the recession, they probably will really thrive when the economy rebounds.

Many would argue that a district is damaged more by a poor business operator who cannot garner customer support than by a vacant storefront. Let us not take our admiration of small business people to the point where we canonize all of them. By definition, half of the small business operators in this country are below average. The challenge in this recession is to fill the downtown vacancies with as many above average operators as we can. The quality of the existing tenants is more important than the quantity of empty stores!

Now is the time for downtowns to survive and reposition. Consequently, there are lots of better barometers than vacancies for judging how a downtown is doing during our current economic troubles:
• Have shops and eateries adapted to the new market realities so their owners can still make a satisfactory living?
• Are quality businesses opening?
• Are store facades being maintained and improved?
• Is land being quietly assembled for development when the economy rebounds? Better still, are projects actually going into construction?
• Are improvements being done to make the downtown a more convenient place to visit?
• Are investments being made to create terrific public spaces?

N. David Milder

Downtown Retail Part II. Survive, Manage Effectively and Reposition

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It is essential for downtown retailers to keep the proper perspective. While the media frequently ask and answer the recession question, no one to our ken has suggested that we are entering a depression resembling what this nation experienced during the 1930s. Consumers have not stopped shopping, though they may be spending less, purchasing a different basket of merchandise and making consumer purchases based on new weights for the variables in their decision-making calculations. The consumer expenditure pie has shrunk, not disappeared, and merchants will be facing tougher competition to capture their individual slices. Some retailers will close, while others are likely to open, though overall vacancies may increase.

Although it is true that a few firms can grow during a recession — e.g., MTV, Silhouette Blinds, Trader Joe’s, and the iPod were all launched during economic downturns – most retail experts recommend a more prudent response to tough economic times that emphasizes three key objectives: survival, effective management and repositioning. For some downtown retailers, effective management and repositioning will be essential to their survival.

A. Effective Management
To get through the stressful economic conditions anticipated for the coming five years downtown retailers will definitely need to carefully manage their resources. This may require more inventiveness than just making across the board cuts. For example, the need for some form of effective and affordable advertising will be greater than in fat economic times, but finding the money for it and deciding how to advertise can be a real challenge for small merchants when newspaper readership is in a steady decline, print advertising is losing both its effectiveness and popularity, and ad clicks on Google have flattened. 1

B. Repositioning
Tough economic times create good opportunities for downtown retailers to take stock and rethink their businesses. For example, instead of making a 20% across the board cut, a merchant could reposition by cutting out an entire underperforming line and using the money saved to introduce a new one that is better suited to the current economic conditions.

Or the merchant might develop a stronger, yet affordable customer service program to counter his customers’ increased desire for low prices. Along these lines a merchant might devise a program to encourage “customer advocacy.” Advocates – some experts call them Store Apostles — will “like your store, recommend you to others, buy from you and stay with you.” 2 Whether a shop has customer advocates or customer antagonists can have a big impact on its bottom line, especially in tough economic times: a small core group of customer advocates may account for as much as 50% of a store’s sales and profits. 3 A recent study of customer advocates among apparel shoppers found that the two characteristics that were most important to them were that the shopping experience be pleasant and enjoyable and that it is easy to do. 4 The biggest attitudinal difference between an apparel store’s advocates and its antagonists was on their perceptions of whether or not the store had an “always fresh and new product selection.” 5

Customer antagonists can pose a real problem: about 31% of shoppers tell many people about their bad experiences and 48% of customers will avoid a shop because someone told them about having a bad experience there. 6

C. Strengths Of The Unscathed
A recent magazine article identified some retailers that appear to be weathering the current recession unscathed. It is probative to review the explanations given for their enviable situations: 7

• Tiffany & Co.: “… wealthy folks still have Valentine’s Day and wedding gifts to buy. Luxury retailers without an international presence are the ones struggling. ‘Tiffany’s end results were pretty good because they don’t only sell to clients looking for affordable luxury but to very rich customers who are not necessarily impacted by the U.S. dollar’ says Dave Sievers, retail practice leader at Archstone Consulting.”
• Wal-mart: “…on the other hand, does better with sales of food and nondiscretionary items, which continue to perform solidly.”
• Urban Outfitters. “No other store looks like them. The catchy windows draw people inside. The funky clothes sell themselves.”
• Costco: “They offer constant newness and incredible value.”
• Walgreens: “…leads the drugstore sector in sales and profits with 1,600 24-hour stores (out of their 6,237 outlets), convenient locations and easy online access.”
• J.Crew: “… made the designer business affordable through brilliant product development. Now customers get cashmere sweaters and tailored suits for less than high-end labels.”
• Kroger: “The largest traditional food retailer in the U.S. is doing well because its stores are convenient and people still need to eat.”

The following factors can be distilled from the above comments:
• A focus on non-discretionary consumer items
• A very upscale customer base
• Convenience
• Value through price alone or a high design quality per dollar ratio
• Merchandise and shopping environments that are unique and frequently refreshed

The discussion above is not exhaustive, but it is hopefully a good place for many downtown merchants to start when thinking about how to adapt their operations to the economic conditions that are likely to dominate their downtowns over the coming five years.

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Endnotes
1. Julia Angwin and Joseph Hallinan, “Newspaper Circulation Continues Decline, Forcing Tough Decisions – WSJ.com,” http://online.wsj.com/public/article/SB111499919608621875-72vA7sUkzSQ76dPiTXytqgOMS5A_20050601.html.
Louis Hau, “Newspaper Ad Decline Accelerates – Forbes.com,” http://www.forbes.com/2007/08/31/newspapers-advertising-media-biz-media-cx_lh_0831newspapers.html. Robert Hof, “Google: What Goes Up…,” http://www.businessweek.com/magazine/content/08_15/b4079021321853.htm?chan=top+news_top+news+index_top+story.
2.Melody Badgett, Maureen Stancik Boyce and Jeffrey Hittner, Why advocacy matters to apparel retailers :Customer focus requires apparel retailers to dress for success, IBM Institute for Business Value, 2007, pp.14, p.2
3. Michael J. Silverstein and Neil Fiske, Trading Up: The New American Luxury, Penguin, New York, 2003, pp.305, p. 18
4. IBM Institute for Business Value, “Customer Focused Apparel Retailer Study.” 2007
5. Melody Badgett, Maureen Stancik Boyce and Jeffrey Hittner, Why advocacy matters to apparel retailers :Customer focus requires apparel retailers to dress for success, IBM Institute for Business Value, 2007, pp.14, p.8
6. Ibid. p.2
7. Kristina Dell, “Retail Stars of the Recession – TIME,” March 18, 2008, http://www.time.com/time/business/article/0,8599,1723257,00.html.