Wednesday, March 14, 2012

Which Retailers Go Where?

When a new retailer is announced, two responses are often heard. Some people question why the city allowed the proposed retail use when the community preferred something different. Others question why the developer or landlord isn’t more in touch with the community wishes. They then decry the developer’s “greed”.

Here’s a quick course in what drives decisions on retailer uses. What matters is: (1) What product or services is the community is willing to buy in sufficient quantity to allow the store to make a profit? Not what the community would like to be available, but for what they’re willing to put cash on the barrel head to buy. (2) If a new building or major interior upgrades are required, for what uses is the bank or other lender willing to provide funds? (3) On what business is an entrepreneur willing to risk his funds and time to operate?

On rare occasions, laws may prohibit a particular use. E.g., a bar may not be located next door to a school. But most retail decisions are based on the three criteria above. It is exactly the list of criteria that should occur in a capitalist state. If you want City Hall to decide which use should go into every vacant corner store, then what you want is a state-managed economy which, occasional scare stories notwithstanding, is a long ways from what the U.S. is.

But, if community preferences are not usually on the list of how retail locations are selected, are there more times when they should be? An owner of a vacant store in the District of Columbia is posing that question. Through a website, he is asking the neighbors around his property how he should use his vacant building. Not surprisingly, some of the responses don’t grasp the type of businesses that would be physically compatible with the space. Others don’t grasp the need for the retailer to make a profit. But people are responding to the website, which is a good thing. Dialogue, even when digital, is better than no dialogue.

Other property owners are concerned about the fallout from the process, wondering what will happen when the property owner selects a use that wasn’t the favorite of the neighbors. The property owner acknowledges the risk, but believes that the potential reward of learning of a new and creative use outweighs the risk.

In New Orleans, artist Candy Chang tried another approach to the community input question. As depicted in the movie “Urbanized”, she found retail structures that were abandoned in the aftermath of Katrina. At each, she posted a number of comment cards and a pen, asking neighbors to provide input on a proposed use. The responses ranged from possible to unrealistic to sarcastic, but at least the community was involved.

All of which leads to a question. If there are times when the community is so committed to a particular retail use or retail area that they willing to provide financial support, how can that support be delivered? Over the years, I’ve developed two thoughts.

Some of us may have belonged to country clubs, health clubs, or gyms that had dining assessments. Each month or each quarter, every member was required to spend as certain amount on food at the facility. A typical dining assessment might be $100 per month. If a member fell below the minimum, the difference was added to his dues. It results in great social opportunities on the last Saturday of the month when all the members congregate in the dining room to fulfill the last of their dining assessments before the first of the month.

Can the same approach be used in a multi-family building? Perhaps the developer promises that there will be a coffee shop and a deli in the lobby. To support the uses, the tenants are required to spend $50 per month in the two locations. If a tenant falls short, the deficiency is added to the rent.

A model like this can have problems. What if the tenants don’t like the food from the deli and resent having to spend money there? I once watched a fight on those grounds at a golf club north of Seattle. But the potential for an occasional conflict is not a sufficient reason to ignore an otherwise valid approach.

A second thought is a discounted debit card. All of the merchants in a downtown core or a walkable district agree to accept payment from a debit card specifically designed for their neighborhood. Local residents may sign up for the card, which is loaded with an initial $200 and tied to a checking account. When the card is empty, it’s automatically refilled. However, if the card was emptied in less than 30 days, then only $170 is charged to put a new $200 on the card, a 15 percent discount. If the card is emptied in 31 to 60 days, then $180 is charged. If 61 to 90 days, then $190. Over 90 days, the full $200 is charged.

If the merchants agree to accept a 12 percent on all debit card purchases, it may provide enough funds to cover the discounts and administrative expenses. The numbers likely require tweaking, but the model may have validity.

I recognize that there are few truly original ideas. If anyone knows of either of these two approaches being used to support walkable retail, please share.

As always, your questions or comments will be appreciated. Please comment below or email me. And thanks for reading. - Dave Alden (

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