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Downtown Retail Sales
by David Stanowski
10 June 2008


Part 1 of this article summarizes the highlights from previous reports that have documented just how badly the retail sector is performing in the City of Galveston. These reports were unable to separate the retail sector in Downtown Galveston from the City as a whole.

Part 2 includes newly available data on retail sales in Downtown Galveston.

Part 3 offers a solution to the problems that plague Downtown retail businesses:


Galveston Retail Sales showed how local Retail Sales Per Capita exceeded the national average by $1,462 in 1984, but by 1987 they had slipped below the national average. This decline continued until, in 2006, Galveston's Retail Sales Per Capita were $2,361 LESS THAN the national average!

With 4.4 million tourists visiting the Island each year (source: GEDP, page 10), there is a influx of potential shoppers that is 70 times larger than the local population. Even though many of them are only here for a short period of time, their purchases should boost Galveston's Retail Sales Per Capita far beyond the national average. The fact that they don't demonstrates that there is a major problem with the local retail sector!

After being adjusted by the CPI, Galveston's Per Capita Retail Sales show no net gain over the last 22 years, and have entered a new period of weakness, since the year 2000! National Per Capita Retail Sales, after adjustment by the CPI, peaked in 2004, which is further confirmation that Galveston's Retail Sales are lagging the country as a whole.

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Retail Sales to Tourists compared Galveston to the State of Texas as a whole, and to other small tourist towns in the state. The data shows that Galveston's Per Capita Retail Sales are far below those for the State of Texas, as well as the national figures! The Per Capita Retail Sales in both Kemah and South Padre Island are about twice as high as in Galveston!

Location 2006 Retail Sales 2006 Population Per Capita
Retail Sales
U.S. $4,365,000,000,000 300,000,000 $14,550
Texas $309,347,324,205 23,507,783 $13,159
Galveston $486,709,290 57,523 $8,461
Kemah $39,515,986 2,475 $15,966
South Padre $49,360,669 2,704 $18,255

Galveston was also compared to the State of Florida, and five small tourist towns in that state. All of the Florida towns studied are doing much better than Galveston. Incredibly, Per Capita Retail Sales in Panama City and Fort Meyers were 4-6 times higher than in Galveston!

Location 1997 Per Capita
Retail Sales
U.S. $9,517
Texas $9,430
Galveston $6,016
Florida $10,297
Pensacola $16,748
Panama City $23,089
Bradenton $11,000
Sarasota $18,265
Fort Myers $37,133
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Retail Sales Per Capita took a look at how much the higher Median Household Incomes in Kemah and South Padre Island may have helped them to generate more Retail Sales, how Galveston compared to some nearby non-tourist towns, and is the problem simply that it is so easy for Galveston residents to go to Houston where more shopping choices are available?

The data showed that seven nearby Texas cites have higher Retail Sales Per Capita than Galveston!! This is true of Port Arthur even though it has a lower Median HH Income than Galveston, and probably far fewer tourists! Beaumont has Retail Sales Per Capita 139% higher than Galveston with a Median HH Income only 6% higher! Clearly, Galveston's low Median HH Income is NOT the problem.  
 
Texas City, La Marque, Dickinson, and Kemah all offer closer proximity to shopping in Houston, but they are not suffering enough defections to push their Retail Sales Per Capita below those in Galveston!

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Retail Districts:

There are four primary retail districts in Galveston: 61st Street, Seawall, Broadway, and Downtown. The Downtown district is unique for two reasons. First, it is not made up of the modern shopping centers and strip malls that are employed in the other areas, which also enjoy a great deal more traffic flow due to their locations on the three main arteries used by both residents and visitors to travel across the Island.

Second, Downtown Galveston
is one of the great 19th-Century commercial districts in the country, which makes it the crown jewel of the City Center. Without a vibrant Downtown area a great deal of the heart and soul, the character, and the cultural experience of the Island would be lost, and the historic building stock would be at risk of deterioration and decay.

Downtown Galveston also has one monumental challenge that is not an issue in the other districts; it is a collection of individual shops that do not have the advantage of the centralized management and control enjoyed by the modern shopping centers on 61st Street. 

All three of the previous retail studies were not able to break out the results for downtown Galveston from the City as a whole. However, due to some new sorting capabilities, the Comptroller is now able to separate retail sales, in Galveston, by Zip Code!

The 77550 Zip Code is basically defined as all of the area east of 45th Street, so it does include many businesses outside of the downtown area, such as two Arlan's, two chain drug stores, and several auto parts stores. Therefore, for the purpose of this report, it will be assumed that 40% of the retail sales in the 77550 Zip Code are in Downtown Galveston.

The most current data available covers the period 1Q 2002 to 4Q 2007.

The 77550 data will be adjusted for inflation using pre-1983 formula for the CPI as was described in Texas Sales Report: 4Q 2007.
 

77550 Retail Sales:

The graph of quarterly Retail Sales for the 77550 Zip Code shows that, with the exception of a spike 4Q 2005, there has been no consistent pattern of growth for the last six years!

Retail Sales 77550 Quarterly
Source: Texas Comptroller

When this data is graphed on an annual basis, it is clear that Retail Sales peaked in 2005.

Retail Sales 77550 Annual
Source: Texas Comptroller

When Retail Sales for the 77550 Zip Code are adjusted for inflation, they have been trending lower since 4Q 2002, with a surge in 4Q 2005. For the most part, retailers in this area have seen their sales grow at a rate that is less than the rate that their costs have been increasing, for at least the last five years!


The total Retail Sales in the 77550 Zip Code, from 2002 to 2007, were $879,498,230. Using the estimate that 40% of the total was generated in Downtown Galveston, Retail Sales just for this area would be about $351,799,292; or approximately $58,633,215 per year. 

From 2002 to 2007, Total Retail Sales for the entire city were $2,990,476,260. This means that Retail Sales in the 77550 Zip Code represented just 29% of the total, with 59% generated in the 77551 Zip Code, and the balance coming from 77554.

Using the estimate that 40% of Retail Sales in the 77550 Zip Code are generated in Downtown Galveston would mean that only about 12% of the City's Total Retail Sales come from Downtown!


Conclusion:

Many cities are beginning to look at their retail sector as a public resource in the same way as they view their libraries, parks, beaches, and other traditional public assets. The fact that retail shops are operated with a profit motive is beginning to lose its distinction when residents feel that their quality of life is less than what it should be, because they don't have the same easy access, to some products, as people in other cities.

Many Americans have become bored, and disenchanted with the enclosed suburban shopping mall experience, and are seeking the comfort, and authenticity of New Urban shopping centers (aka Lifestyle Centers or Village Centers) that mimic the look, feel, and function of traditional downtowns with a mix of retail, restaurants, bars, and lofts.

Obviously, the most authentic way to achieve this mix is to revitalize historic downtown areas, which means that Downtown Galveston has the potential to become the premiere New Urban shopping center in Southeast Texas, since it is both an authentic downtown, and much of its potential is yet to be realized.

Overall Retail Sales in the City probably peaked about 1984, and Downtown's share may currently be as low as 12% of the whole. 
There is little chance that Downtown Galveston will ever realize its potential without the formation of a Business Improvement District. This should have been done years ago, but with a national recession already upon us, (see Do You Want to Know and Sales Tax Collections Decline in Most States) this may be the last chance to save the crown jewel of the City Center, as we know it, before it reaches a tipping point, and goes into a very messy decline.

With anecdotal evidence suggesting that as many as 25-30% of Downtown businesses are in distress, and on the verge of closing, it will be impossible to assess the business community for the fees necessary to set up and run a BID. Therefore, it is imperative that the new City Council take the unprecedented step of forming a true partnership with the Downtown business owners.

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Proposal:

Using the available data, it looks as though Downtown merchants generate about $1 million each year in city sales tax. Add to that $500,000 to $600,000 from parking meter revenue, plus an unknown amount from parking tickets, and property tax, and it is clear that Downtown Galveston generates a lot of money for City government. However, it should be just as obvious that the City is not making anywhere near what it could, if things were running efficiently.

With a Business Improvement District bringing in the right mix of retail, restaurants, and bars; setting uniform business hours (75% of all sales are now after 5:30 pm); making the latest concepts in retail sales techniques available to all the shop owners; bringing all buildings up to code requirements; and upgrading security, cleaning, and lighting; sales could easily triple within three years!

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 be achieved using a BID, in the downtown shopping district, to run it like a shopping center.

Therefore, there is a very strong argument that it will be in the City's best interest to invest in a BID for Downtown Galveston.

1. The City Council should consider allocating $1 million per year, for the next three years, to set up and fund a BID for Downtown. It's board of directors should be composed of downtown business owners, so that the City government has no role in running it. This will give business owners three years to experience the advantages that a BID can offer, at no cost.

After the three year trial period has ended, if the Downtown BID is as successful as most have been, the business owners should be happy to find a way to assess themselves for the costs of continuing its operation.

However, if they choose to do so, the business owners will have the option to shut down the BID, and go back to the current haphazard way of doing business. In this case, at least Downtown Galveston will be able to increase its sales for three years which will leave it in a stronger position than before the BID was created, and the City will reap its share of any gains.

2. It is the Park Board's mandate to do advertising and marketing for the City. During the three year period that the City is funding the BID, the Park Board should consider allocating one half of their total marketing budget to a separate campaign for Downtown. Downtown Galveston, and the historic neighborhoods, need to be marketed as one of America's first-class Southern Port Cities, like New Orleans, Savannah, and Charleston.  

Tying the City's historical treasures together with a swirl of scenes from the beach, Moody Gardens, and Schlitterbahn makes no sense. What it has to offer gets lost in the noise.

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An investment, by the City, in a BID for Downtown Galveston will greatly decrease the likelihood of a serious decline in the area, and should increase the probability that sales can double or triple over the next three years. Such an improvement in sales would increase sales tax collections by $1-2 million per year, boost parking meter revenues by 3 to 5 times (when the new parking meters are installed), and increase property tax collections, as property values rise.

After years of tax breaks in the form of TIRZs, PIDs, and other schemes that favor a handful of real estate developers, it's time that this City made an attempt to boost the actual economy! 
 
 

For more information on the Galveston Economy:
 
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