Christopher Swope was GOVERNING's executive editor.E-mail: firstname.lastname@example.org
Cities will do almost anything to land the store of their dreams.
Next month, legions of retailers, developers, bankers and brokers will descend on Las Vegas for one of the biggest schmooze fests in the world. It's the International Council of Shopping Centers' spring convention, and to anyone who hasn't been there, the scene -- literally a city under a roof -- can be a bit overwhelming. Exhibitors set up booths as wide as office buildings, and the aisles are platted into a sprawling street grid. At the corner of "38th Avenue & Q Street," mobs swarm the Cold Stone Creamery booth for free ice cream; a "block" away, they get free pretzels from Auntie Anne's. But the real business happens behind closed doors, where the bigwigs of chain retail shake hands on hundreds of deals that decide where America will shop and eat for years to come.
Because the commercial stakes are so high, the ICSC conference isn't just an affair for the industry anymore. It's a big event for local government as well. Mayors, city council members, city managers and economic development officials have become regulars at this annual carnival of deal-making. Some 4,000 public-sector people are now members of ICSC, and they are one of the fastest-growing segments of the association. About 1,200 of them will be in Las Vegas May 20 to 23.
It's easy to see why they feel the need to come. One out of every three retail real estate deals are either conceived at this meeting or completed there. "If you're a retailer looking for 25 sites to expand to, the only place to do it under one roof is Las Vegas," says Catherine Timko, a Washington, D.C.-based retail consultant who has accompanied a few big-city mayors to ICSC.
Many of the public officials who go are people like Wayne Seybold, the mayor of Marion, Indiana, who first went in 2004 and, despite his initial shock at the scale of the event, has been back every year since. "We're a town of 33,000," Seybold says. "There were 40,000 people at this convention. So our first year we were like deer in the headlights. OK, we're here -- what do we do now?"
Like everyone at ICSC's convention, Seybold was looking for deals. He wanted to attract more retailers to Marion so that his constituents could enjoy a wider variety of places to shop without having to drive an hour to Indianapolis or Fort Wayne. That first year in Vegas, Seybold went home empty-handed. But he learned a few things about the retail business and how to go about romancing the chains. For example, he figured out that big retail companies usually prefer working with favorite developers. That meant he was better off talking to the developers rather than simply chasing around after familiar brand-names. Seybold also learned how crucial data is to retailers -- not the Census Bureau stats that every mayor knows by heart but detailed spending patterns of Marion residents mined from their credit card accounts.
Seybold's more recent outings to Las Vegas have been more productive. Now he goes with a group of local builders and a list of specific development sites he wants to discuss. Seybold also carries data compiled by a retail consultant showing that his small city actually anchors a respectable trade area of 250,000 people. "That really enabled us to change our marketing and our message," Seybold says. "We can take that information and say to retailers that this is the reality of what's going on in the city now. People are starved for certain types of retail."
It's taken a while, but Seybold's Vegas trips seem close to paying off. Two large mixed-use retail projects are in the works in Marion, one near a local university and another near Interstate 69. What's more, the town has its first Starbucks. That may not be a big deal in Seattle, but in Marion, 200 people showed up for the groundbreaking. "For a lot of people, going shopping or eating out has become their entertainment," Seybold says. "I keep hearing people say there's not a lot to do in this city. What they mean is that we don't have enough retail. If you don't have retail and restaurant choices, people look at that as the city not having such a great quality of life."
Not every community sends its mayor to ICSC or goes about recruiting retailers in quite the way Marion does. Yet more and more cities are chasing after chain stores and restaurants these days as an explicit economic development strategy. Some do it solely to boost sales-tax revenue. Increasingly, however, they talk the way Seybold does -- about the less tangible "quality-of-life" issue.
For cities, suburbs and small towns alike, retail presence has become closely intertwined with self-image. As the sociologist Sharon Zukin once wrote, we are where we shop. That's more true than ever in a mobile country whose retail landscape is increasingly dominated by national brands. Mom-and-pop stores may provide local flavor, but chain stores are societal benchmarks. Mayors hear it from their constituents all the time: Why don't we have a Trader Joe's? Why don't we have a Bass Pro Shops? What are we, some kind of backwater?
When local officials get into the retail chase, however, what they quickly find is a curious business that doesn't follow the same rules that govern site selection in other industries. Most big corporations that governments recruit are interested in the quality of the local workforce. Chain retailers don't worry much about that. They don't need many highly educated employees. What they want to know is how many of their customers live nearby and how long it will take them to get to the store. Chains also want to locate near other stores that serve a similar clientele. Chico's, the women's clothing store, likes to be near Pottery Barn or Crate & Barrel. As Tim Angell, the head of economic development for Des Plaines, Illinois, says, if municipalities want to attract retailers, then "they have to think like a shopping center developer."
Retail is also a notoriously faddish business. Strangely, that's another reason why some older localities have become more visible players in recent years. Enclosed regional malls built in the suburbs are no longer much of a growth industry. In fact, many of them are dying -- wounded fatally by consolidation of department store chains.
What's hot now is the "lifestyle center" -- an open-air mall, essentially, in which street-level shopping is mixed with housing, restaurants and public gathering spaces. And developers typically can't pull off these complex, mixed-use projects without some help from city hall on zoning, land assembly and parking. So there's more reason than ever for local governments to gravitate toward ICSC and the deals that emerge from the massive annual meeting.
Meanwhile, the attitude of retailers toward central cities has changed. Now that they've tapped out all the easy development sites in the suburbs, many of the big companies desperately want to penetrate urban markets. Even the big boxes have shown a willingness to tinker with their cookie-cutter store designs, to fit tight urban sites in ways that would have been unthinkable five years ago.
Home Depot recently opened a store in the middle of Manhattan. It's pedestrian oriented -- there's no parking -- and located in a historic building. Target is experimenting with two-story formats in Southern California. According to Robert Gibbs, a retail consultant based in Birmingham, Michigan, only two things are holding back urban retail now: the cumbersome permit process in many cities and a bias against chain stores that a growing number of cities are writing into law in the form of anti-big-box ordinances. "Cities have a supply problem, not a demand problem," Gibbs says. "There's a new willingness among retailers to flex their models, but cities for the most part aren't doing their part."
Much of the change in the retail market is happening not just within cities but in the middle of downtown. All over the country, young professionals and empty nesters -- people with disposable income to spare -- are moving into new lofts and high-rise condos. Those new residents have to shop somewhere. In downtown Minneapolis, now home to 30,000 people, three grocery stores are coming, and not one of them requested government subsidies. "For years, all the cities in the Midwest wanted to have a Michigan Avenue," says Minneapolis Mayor R.T. Rybak, referring to Chicago's famous high-end shopping street. "Michigan Avenue is spectacular, but we're not all going to have a Michigan Avenue." What's evolving downtown now, in Rybak's view, is a hybrid retail model where destination shoppers can still buy $200 shoes, but where the people living upstairs can find a dry cleaner. "Focus on the housing first," Rybak says, "and the retail will follow."
At the end of February, nearly 100 local government officials from around the country participated in an online webcast, called "Winning at ICSC," advising them on how to get the most out of their visit to the conference. Some of what they heard wasn't especially reassuring. Valerie Richardson, vice president of real estate for the Container Store, warned the group that if they hadn't already made their appointments with the top retailers, it might be too late -- three months before the conference even started. "We have folks calling now," Richardson said. "Our schedules do book up very quickly." What's more, the officials were told, it might be a waste of time to show up unless they could bring with them a roster of developable sites on which they were ready to make deals. In the absence of such a list, developers often refuse even to talk.
The webcast had a cautionary tone all the way through. David Miller, the city manager of Forest Hill, Texas, told first-timers that it could take three years at ICSC just to make sense out of the chaos of the convention hall. "You'll spend a lot of time learning the layout and how it works," he said. "The second year you'll be more productive because you'll know how to deal with the intensity of the conference itself. By the third year, you're a seasoned pro."
"Winning at ICSC" was presented by The Buxton Co., a retail site selection consultant. There is, in fact, a whole cottage industry of consultants whose main line of work is helping retailers vet expansion sites but who have recently found a lucrative public-sector business on the other side of that equation. Companies such as Buxton, Claritas, ESRI and MapInfo use sophisticated data mining and mapping tools to help cities pinpoint customers and hone their pitch to retailers.
Buxton, for example, goes beyond demographics by drilling down into consumers' credit card accounts and magazine subscriptions. In the industry, this kind of data is called "psychographics." As Buxton vice president Joseph Fackel explains, "you and I could be the same age, both white males, educated and making the same amount of money. But you may be into traveling, collecting wine and subscribe to Gourmet magazine. Well, maybe I like to hunt and fish, I drive a pickup, I wear boots and I subscribe to Guns & Ammo. Bass Pro doesn't need you, but they need me." By running this kind of analysis, Fackel believes he can help cities determine what sorts of retailers their markets can support -- and tell them which companies they shouldn't even bother chasing.
According to Seybold, this kind of data has helped Marion make sense of its retail market. "They're pinpointing customers as opposed to drawing circles," the mayor says. "We were traditional: Here's a point, and here's a 15-mile circle around it, a 20-mile circle, and a 30-mile circle. They came in and said the way we do it today is with drive times -- 10 minutes, 15 minutes, half an hour. Where we are in rural Indiana, there's not a lot of stoplights, so our market became a lot bigger."
Not everyone thinks the consultants are worth the money -- Buxton's services cost $70,000, and some of the psychographic data is available more cheaply from other sources. Likewise, not everyone is convinced that jetting off to Vegas is what every mayor or economic development director needs to do. "Vegas has taken on a life of its own," says James Kaplan, a suburban Chicago shopping center developer. "But the developer that's going to work in your small town is the guy who's already within 25 miles of you. You're not going to go to Vegas and find someone from New York to go to your town of 15,000 people."
"I roll my eyes when I hear about another city running a team out to ICSC," says Brad Segal, a Denver consultant who helps cities plan for revitalizing their downtowns. Segal believes that the best retail strategy is not, per se, a retail strategy. He says smart businesses these days are looking for urban amenities that draw people for reasons other than shopping. "To me, a successful downtown is a multidimensional environment that includes housing, office workers, arts, culture and entertainment. And it includes retail. Retail is a means, not an end. Still, some old ways of thinking on retail leads us to the ICSC convention and trying to recruit the trophy."
Whether or not cities send delegations to Las Vegas for three days in May, recruiting retail is becoming a more time-consuming job. In Louisville, it consumes eight full-time jobs. A few years ago, Mayor Jerry Abramson began noticing how shabby some of Louisville's retail corridors were looking, especially where stores such as K-Mart had pulled out and left behind empty big-box buildings. So the mayor set up an economic development program focused entirely on retail attraction and growth. A few cities, such as Chicago and Philadelphia, have similar offices, but Louisville's effort is notably aggressive.
The "Corridors of Opportunity in Louisville" office is headed by John Fischer and consists of four economic development officers working for him. Each has responsibility for one quadrant of the city, and all share responsibility for promoting retail and restaurants downtown. Two staffers help with administration and one, a geographic information systems expert, runs psychographic analyses that Fischer's team can take to retailers and show where pockets of underserved customers are. At the end of February, Fischer was busy trying to convince Kohl's that the discount department store would do well in a location recently vacated by Dillard's.
Fischer's office leans on city departments and utility companies to expedite permits and hookups, and brokers relationships between retailers, developers and landlords. The office has worked on over 200 deals. An early one involved the Bashford Manor Mall, an enclosed shopping center that was losing tenants, looking ragged and attracting criminals. The local neighborhood association wanted something done about those problems. So Fischer contacted the mall's owners in Illinois and talked about finding a new direction for the site. The city offered a low-interest loan to help demolish the old mall and helped recruit a Wal-Mart SuperCenter and a Lowe's.
Louisville's model also pays attention to local mom-and-pop retailers. The thinking is that most successful chains started out as a single successful store -- the first Starbucks in Seattle, for example. Abramson routinely approaches local businesses that are doing well in one location and asks the owners if they might be willing to open a second, third or fourth. That's how Wick's Pizza, a well-known establishment on Louisville's east side, expanded into a strip center on the other side of town. "Those are easy," Abramson says. "We go to the local businessmen and women who already have the cleaners or the shoe-repair shop, and we show them a strip center where they can get low rent and we help them out with a low-interest loan. We're not asking for gifts or charity. We're telling them we've run the numbers, and the neighborhood is willing to support the cleaners or the shoe-repair shop or the bookstore or the coffee shop. And we've done every one of those."
Abramson and Fischer take pride in Louisville's effort to generate a home-grown retail expansion. On the other hand, they see a combination of mom-and-pops and big national chains as the healthiest retail mix. Fischer, an ICSC veteran who knows the convention's quirky rules, is headed to Las Vegas next month -- he's been lining up his appointments with developers and retailers for weeks. And for the first time this year, Abramson expects to join him. There may be hot deals available; there might not. Either way, they figure the mere possibility of rubbing shoulders with the right developer or retailer is too much to miss. As Fischer says, "The basis of everything we do is relationships."
Going shopping for retailers? Here are 10 things to know:
1. Get your hands on the same detailed consumer data the retailers are using. Fill holes in that data with on-the-ground intelligence. If your community wants a hardware store, find out the number of home renovations and building permits that have been issued. "It's important to know what metrics these folks are using," says Alyssa Stewart Lee, head of the Urban Markets Initiative at the Brookings Institution. "What your ground truth says about a place can inform their decision matrix."
2. Time is money. Chains face tremendous pressure to expand locations quickly. They'll skip your town if the permitting process is too long and complicated. "Stores have to open to keep their stock prices rising," says retail consultant Robert Gibbs. "A development director for a chain is told to open five stores in a region by a certain date, and if they don't open he gets fired."
3. Be realistic. Retailers simply won't go where they can't find a critical mass of customers. It doesn't matter how much a few vocal people in the community may want them. "At the end of the day for retailers, locations are data-driven decisions," says Joseph Fackel, vice president of the Buxton Co. "If the data doesn't line up, they don't do the deal."
4. Make a retail master plan. Know what types of businesses your community can support (see No. 1), and have viable development sites ready to go. "Cities should have a written policy saying they want to be competitive and gain market share," says Gibbs. "And they have to have a public parking strategy."
5. Don't fight the chains. Instead, work with locally-owned stores to help them survive. If mom-and-pop can't afford high rents in a newly revitalized area, help them relocate to another part of town. Or, offer low-interest loans to help successful local retailers expand into chains themselves. Don't forget: Starbucks was once just a small Seattle coffee shop and Wal-Mart a single store in Rogers, Arkansas.
6. Mix uses. Retail often follows other functions and activities. So the best retail strategy sometimes has nothing to do with retail. It has to do with housing, entertainment and culture. "Stop thinking so much about sales tax dollars," says retail developer James Kaplan. "And think about ways and reasons to get people into town."
7. Invest in the public realm. Retailers may be leaving shopping malls for more urban settings, but they still want a predictably clean environment where their customers feel safe. Lighting is especially important: 70 percent of all sales occur after 5:30 p.m. "Cities need to have high design standards for signage, lighting and building design and be willing to enforce those standards," says Gibbs.
8. Consider incentives. Retailers won't go where their customers aren't -- see No. 3. But many chains are risk-averse and are unwilling to locate in unproven markets without a little help. Plus, anchor stores are accustomed to cutting deals on rent at shopping malls. "Bigger-format retailers come with an expectation of lower rents," says Paul Levy, president of the Center City business improvement district in Philadelphia. "In most cities, they've been able to get their way. That's the reality of the marketplace."
9. Be patient. Although retailers are often looking for fast returns, many also plan for expansion several years out. Retail recruitment efforts may not pay immediate dividends, but relationships formed now may pay off five years from now.
10. Keep up with the times. Retail trends come and go like women's fashions. But you can't hide a dead Marshall Fields or Tower Records in the back of the closet. Enclosed malls are out. Lifestyle centers are in. What retail concept will be hot next?