Under New Management?
by David Stanowski
21 February 2008
When I published my first article on local retail sales, in October 2007, no one was shocked that sales were below par, but many were surprised at just how bad they really were. The obvious question many asked was; "Why?". After several weeks of research, at least part of the answer is now clear.
The Galveston retail market can be divided into four main corridors: downtown, Broadway, Seawall, and 61st Street. The data used in the previous studies do not separate the sales by the area of the City, where they are generated, so the relative performance of each area is not known. For the purposes of this article, it is assumed that retail sales in downtown Galveston are not substantially different than for the City as a whole.
Since I do not pretend to be an expert on the retail market, I went looking for an expert who had a philosophy, and approach similar to mine. Robert Gibbs is an internationally renowned retail consultant who started in the business by working for shopping centers, but in recent years he has spent more time on revitalizing historic downtown shopping districts. Gibbs Planning Group has performed more than 200 urban retail studies since 1988.
The thing that I like the most about Gibbs is that he realizes that for historic downtowns to be successful, they must be guided by retail experts, and NOT by urban planners, or historic preservation architects. Those professionals can certainly preserve these areas, and make them look good, but they often make changes that greatly hinder the flow of commerce, in the district. First and foremost, Gibbs understands that without profits, downtowns will not survive no matter how good they look!
In 2002, Charleston, SC hired Gibbs to revitalize King Street. Here is a partial list of their retailers:
Abercrombie & Fitch, Benetton, Laura Ashley, April Cornell, Gucci, the Gap, Nicole Miller, Ann Taylor, Berlins, Christian Michi, Granger Owings, Bob Ellis, Elza’s, Nancy’s, Rangoni of Florence, Saks Fifth Avenue, RTW, Urban Cotton, Stella Nova, Victoria’s Secret, and Jimmy Buffet's Margaritaville Cafe. This may not be the right mix for Galveston, but it is better than T-shirt shops.
The good news is that consumers are tired of suburban shopping malls. They are yearning for more authenticity in their lives, so many new shopping centers are being built as "New Urban" shopping centers, aka Lifestyle Centers or Village Centers. These shopping centers attempt to simulate the look, feel, and function of downtown areas with a mix of retail, restaurants, night clubs, and residential.
Obviously, the most authentic way to achieve this mix is to revitalize historic downtown areas. Many big companies desperately want to penetrate urban markets, but they are often frustrated with the cumbersome permitting process, and other restrictions in some cities.
Examples of successful "New Urban" Shopping Centers:
Phillips Place; Charlotte, NC
Mizner Park; Boca Raton, FL
Mashpee Commons; Cape Cod, MA
Without a vibrant retail market, most downtown areas can only support a mix of bars, night clubs, and restaurants, and are largely unused during the daytime. This does not tend to maximize the economic activity in the district, so it usually is only "chosen", by default, if a city fails in their efforts to become a retail center.
The heyday of downtown shopping districts occurred before the art of modern retailing was invented, so the best hope of revitalizing downtowns is to learn from what shopping centers have been doing for the last 40 years. Retail is now more than just products and services, it is a multi-dimensional experience; it is a quality of life issue.
The following suggestions, for changes to downtown Galveston, are based on what I have mined from the work Robert Gibbs did in other cities. Hopefully, some group in Galveston will retain Gibbs to do this work himself, in the near future, but until that day, my simple efforts will have to suffice.
In the late 1950's, and early 1960's, traffic engineers believed that it was their job to reroute traffic away from downtown shopping districts. At the time, businesss owners agreed, because they felt overwhelmed by the increase in traffic volume which seemed to create a "busy atmosphere" that drove away shoppers. The decision to try to get rid of cars was what initially killed downtown areas.
The latest data shows how wrong they were! These studies indicate that traffic must flow to and through downtown areas to facilitate shopping. Ideally, 25,000 cars per day should drive past shops to give them maximum exposure. Now the goal is to get more cars into downtown areas!
Parking is critical for downtown shopping areas to work. Most shoppers want to park close to their point of destination, and ideally they should be able to park where they can see the door to their first stop. This means that on-street parking must be rationed with parking meters, so that it is used primarily by shoppers. Modern parking meters, such as the ones sold by Photo Violation Technologies, can eliminate much of the frustration that customers have with parking fees.
Parking lots are usually needed to handle the overflow that can't find on-street parking, and some cities even offer free parking, in lots, while they charge for on-street parking.
To achieve the ideal retail mix for each city, research must be done by analyzing the detailed spending patterns of potential customers using such things as the credit card purchases, and magazine subscriptions of nearby residents, to determine what kinds of retail can be supported.
Buxton, Claritas, ESRI, and MapInfo are the top companies in this field. Buxton usually charges about $70,000.
Here are the reports that Buxton did for Kent, OH:
Summary for Kent, OH
Full Report for Kent, OH
After the research is completed, downtown shopping areas need to have a strategy to achieve the best mix of stores. Ideally, at least one anchor store can be recruited. In a shopping center, an anchor usually gets lower rent than most other stores, because it will do a lot of advertising and run promotions that will drive traffic to the mall. Galveston probably needs one or two anchors on the Strand, and maybe one more on Postoffice.
A downtown area must have at least 200,000 square feet of retail space, as well as the right mix of shops, to become a "destination"; a place people are willing to travel to for shopping.
Locals versus tourists:
Most downtowns are successful because they bring back stores where the locals will shop on a day-to-day basis. Even low-income towns have done well by offering things like the type of clothes and shoes that residents want, at reasonable prices. Downtown residents also need places like grocery stores, and dry cleaners, but these stores must be able to co-exist with shops that sell $200 shoes that appeal to high-end customers.
The worst mix will feature T-shirt shops, and stores that sell things like scented candles, and kites. The locals don't buy this stuff, and only a few tourists will.
70-75% of all sales are now made after 5:30 pm, and on Sundays. Downtown shops MUST keep these hours if they are going to succeed. This puts independents at a big disadvantage, because most don't want to hire the managers, and enough employees to do this. More than half of all chain stores are open evenings, Saturdays and Sundays.
Chain stores versus independents:
Typically downtowns will not succeed without at least 40-60% chain stores. Many cities are biased against chain stores, but most chains are now willing to adapt their designs to historical buildings, and cities should not set artificial limits on store sizes.
Independents can only substitute for chains if they offer the merchandise, service, and pricing of the chains, or if they have unique concepts, and merchandise. All stores should have signs that show the brand names that they sell.
Chain store retailers don't worry much about the quality of the local workforce.
Potential customers often perceive downtowns as being unsafe. This is especially true at night. To combat this, they need to be very clean. A grimy look is a sign of disorder, that suggests a lack of safety. The premiere shopping districts clean their streets, and power wash their sidewalks every morning! This may be impractical in Galveston, but once a month would sure help.
Such activities as panhandling, vagrancy, loitering, and skateboarding also are signs of chaos, and danger. Downtowns need to eliminate these problems, and a provide a constant visible police presence.
Lighting is also very important. Many downtowns must forgo their Victorian lighting schemes in favor of modern lights to bring the shoppers back. Evening hours, better lighting, and police presence also drive the restaurant, and night club business to whole new levels.
The major chains want to know that if they invest a lot of money in their store, all the other stores, in the district, will meet the minimum standards. They want uniformity, and predictability in store fronts, modern signage, lighting, and building design, and look for cities that will enforce those standards.
Store fronts need to be at least 70% clear glass.
Recruiting retailers is now usually a full time job. Louisville, KY, with a population of 256,000 (four times the size of Galveston), has eight full-time people who perform this function, because the mayor set up an economic development program focused entirely on retail attraction and growth. In Louisville, the group in charge of retail attraction and growth leans on city departments and utility companies to expedite permits and hookups, and facilitates relationships between retailers, developers, and landlords. Chains will skip any town where the permitting process is too long and complicated. Is anyone doing this in Galveston?
A downtown area needs a good web site. For many potential retailers, this is the first thing they see when they consider a city.
Shopping centers often create small low-rent spaces called "incubators" that allow local entrepreneurs to test drive new ideas in retailing. Downtowns need to do the same thing. Start-ups that are successful move to larger full-priced spaces.
Independent stores renting space in a successful mall get the benefits of the latest knowledge, trends, and expertise on retailing from the mall owner. The same store, in a downtown area, gets virtually no help at all, so they are at a big disadvantage, if they don't learn these things on their own.
Business Improvement Districts:
What is the probability that these changes can be implemented in downtown Galveston? Close to zero without a structure to manage the process. Over 1200 cities have chosen to use a Business Improvement District to accomplish this goal.
The typical independent store in most downtown shopping districts has sales of $80 per square foot per year. This same store in a shopping center enjoys sales of $275 per square foot per year.
This difference in performance can potentially be closed using a BID to implement the changes outlined above, and manage a downtown shopping district like a shopping center.
BIDS are districts in central cities defined by state and local legislation in which, “the private sector delivers services for revitalization beyond what the local government can reasonably be expected to provide.” The properties and/or businesses within this legally constituted district pay a special tax or assessment to cover the cost of providing facilities or services for which the district has a particular need. The city provides some oversight authority, BUT the BIDs control the purse strings.
The creation of special districts involving extra fees usually requires some form of prior approval by a simple majority of district property owners, and their tenants.
Special assessment districts can be independent of local government, having almost complete autonomy to finance, construct and manage specific projects.
BIDs represent an entrepreneurial approach on behalf of downtown leaders or participating businesses to solve their own problems. By bypassing the slow movement, and cumbersome processes of local government by creating their own organizations, BIDs are able to quickly try and discard or continue different strategies which enhance the district’s environment. Some specific benefits of BIDs include:
Downtown Galveston currently finds itself in a very difficult position. The "modern retailing" concepts that Gibbs suggests using should have been implemented years ago, so what ever is done now will be playing catch up to those who have already been doing these things.
With a city government that has little interest in the success of downtown businesses, it is nearly impossible to imagine how this sort of dramatic change could be facilitated by, or through City Hall. This means that the only conceivable way to do this is for downtown business interests to seize control of the situation themselves by forming a Business Improvement District!
However, with the lack of consensus within the downtown business community it may also seem unlikely that they could agree among themselves to form a BID, and revitalize downtown Galveston. If they continue to focus on the current status quo, they probably won't do so. This is where bad news can become good news.
With the very difficult economic conditions facing downtown Galveston, it is probably at a tipping point. With the City's very low Retail Sales Per Capita, the rapidly declining retail sales around the country, January chain store sales at their slowest since 1970, and with the onset of what will probably prove to be a deep recession; the lack of bold action at this time will likely doom downtown Galveston to a long decline.
On the other hand, if the bad news does finally motivate bold action, downtown Galveston could start building a shopping district that potentially will triple, or even quadruple its current sales, even as the country slides into recession.
A call to action:
Downtown Galveston is the crown jewel of this city, and it is about time that it regained control of its destiny by creating a BID to manage its affairs! Property owners, and their tenants should call for a "constitutional convention" to create a downtown BID. This convention needs to feature a speaker who can present a number of examples from the 1200 BIDs, in the U.S., showing their before, and after results.
After formation, the BID needs to hire Buxton to do their research on the potential customer base, and Robert Gibbs to recommend what to do with this information.
Serious consideration needs to be given to doing a multi-million dollar bond offering to jump start the necessary upgrades to the district, including a first-class marketing and advertising campaign, just for downtown Galveston.
The president of the new BID needs to be an expert in retail sales, and the staff needs at least one person in charge of acquiring new retailers.
The clock is ticking!
Downtown Revitalization Plans:
Business Improvement Districts:
For more information on the Galveston Economy:
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