CNU XVI – Retail Recipes: Finding what sells

We’ve all seen the pretty pictures and heard the gushing stories about wonderful New Urbanist communities. Certainly it’s no surprise to anyone who’s ever developed one, or tried to, that details that make up these pictures and stories were forged in a hot fire of hard work. There are the planning battles, sure, but even before that developers have to slog through mountains of research on retail to arrive at a mix of stores that will generate the revenue necessary to pay for the project.

An overflow CNU XVI crowd crammed into one of the Austin Convention Center’s meeting rooms to hear three experts talk retail. Bob Gibbs, president of Gibbs Planning Group, Jane Grabowski-Miller, design director for Erdman Holdings Inc.’s Middleton Hills New Urbanist development outside Madison, Wis., and Terry Shook, principal at Shook Kelley Architects, discussed demographics, how to put together a successful tenant retail tenant mix, the importance of research, what makes for a successful design and how a growing number of national retailers want to be part of New Urbanist developments.

Gibbs noted that the United States has the highest ratio of retail space—20 square feet per person—of any industrialized nation. He said what makes for a successful retail strategy hasn’t changed much in a few thousand years; stores that front on a street and are exposed to potential shoppers stand the best chance of succeeding.

Although they are wary of the recent economic downturn, national retailers appear to be pushing ahead with expansion plans. They are looking for places to locate, and they are attracted to New Urbanist centers, provided there is good access and the demographics support it. Among those national retailers in expansion mode is JC Penney, which the average American household, earning $44,000 per year, considers a luxury retailer. These same households consider Whole Foods and other upscale stores to be out of their price range. But Penney’s presents an interesting anchor opportunity, Gibbs said. “They’re opening stores and they like Main Street.”

There are plenty of Main Street corners waiting to be reclaimed, too. “We need to re-urbanize our intersections, after we win the revolution against the traffic engineers,” Gibbs said.

When considering retail tenants, Gibbs said it’s imperative to conduct sales forecasts. What kind of a center is it—a convenience center? a neighborhood center? a lifestyle center? All draw from different size areas and all need different mixes of stores. Also, detailed demographic studies provide essential data about who lives within the shopping area, how much they earn, what they buy, how much they spend on shoes, whether they have an American Express card and, Gibbs joked, “how much change they have in their pockets.” In all seriousness, though, it’s that kind of granular detail that is crucial to have before embarking on a New Urbanist development.

The national retail chain interest in New Urbanist developments coincides—perhaps not so coincidentally—with a parallel interest in such projects by the holders of the purse strings: real estate investment trusts. Gibbs said REITs are starting new funds dedicated to developments that incorporate U.S. Green Building Council Leadership in Energy and Environmental Design Green Building System standards. REITs want to fund developments that incorporate LEED standards, residential in addition to retail and transportation components. Not surprisingly, developers have gotten on board. “It was hard to prove to the developers the value of residential over retail,” Gibbs said, mainly because such construction costs 25% more than doing retail alone. “But developers are saying they don’t care whether it pencils out or not, they want it.”

Grabowski-Miller shared her experience getting Middleton Hills approved and building it out. Among the challenges that had to be overcome were overly restrictive guidelines for anchor tenants that excluded a large grocery store and getting smaller businesses to shift away from the strip mall model. Eventually, Middleton Hills brought in a large grocery store as an anchor tenant, and worked with that store to help it relate better to the street network, not just its parking lot. And as difficult as it has been to get smaller retail stores to call the doors along the streets their “front” doors, as opposed to the doors that faced the interior parking lots.

With respect to that grocery store, once Erdman Holdings realized that the community would benefit by changing the guidelines that were keeping the grocery store out, a handful of residents disagreed, and sued to keep the store out. The judge who heard the case, and ultimately ruled in favor of Erdman, now lives in Middleton Hills, Grabowski-Miller said.

The upshot is that even though investors, retailers and developers are embracing New Urbanism, that won’t make up for hard, detailed research about the real viability of such developments.