The shift in demographics over the last 50 years starved out urban retail as the market base relocated to the suburbs. The effects of this shift are still being felt, although the current trends indicate a return to cities and urban life. As the population returns, will older models of retail resurface? Or will cities be redeveloped on suburban models? This is an important issue facing modern cities, and it would be helpful for city decision makers and communities to understand why chains are replacing local “mom & pop” retailers.

As Alfred Julian Gobar points out in Shopping Centers and Other Retail Properties, many attempts to address the collapse of downtown retail with “non-market techniques” have failed because they have not addressed the central issue of accessibility to consumers.
Implicitly, he assumes that “access to consumers” means making parking and highway access available to downtown so that suburban residents can get there. That means replacing the downtown with a suburban shopping center, and will require a suburban road network and large amounts of parking to support it. The alternative is to recreate downtown retail by simultaneously recreating the local market it requires and providing the appropriate scale road networks for a downtown.

In our consulting business we work all over the country- mostly in small downtowns and cities that are trying to revitalize their old commercial centers or mainstreets. The cause of their decline is almost uniform: the population base left in the post-war era as the middle and upper classes relocated to the suburbs (which were subsidized by federal highways, utility improvements and VHA loans) (meanwhile, the center cities were subjected to “renewal” programs and housing projects for the poor). Interestingly, the aspirations of cities are also similar- desiring a vibrant downtown, with a balance of places to “live, work and play,” providing higher density living balanced by plenty of green space, and other amenities. Frequently there is also a preference for locally owned shops, and a fear of loosing the indigenous businesses to national chains.

As cities are being repopulated with demographic segments that support, and desire high quality retail, the locations with access to these markets is more attractive. In his book, The Undercover Economist Tim Harford (another DC resident) describes why Starbucks is located at the entrance to the Faragut North Metro. It is the best location to sell coffee to workers coming off the Metro at 8 am, who don’t have time to stop in elsewhere. But why did Starbucks get the lease instead of Foster Brothers, a local chain? Is it just that they can pay more? Does it have to do with the fact that Foster Brothers are disappointingly inexperienced at making espresso? The rent should be determined roughly by the sales that can be achieved in that location, and if a local shop were there, they would likely do as well and be able to support the same rent. One answer is that the local shop is not a credit rated tenant by Moodys or Standard & Poor. There is less risk to the landlord in leasing the property to a tenant that will not go out of business for poor management, who has a management structure that guarantees payment and can project a competitive percent of sales for the owner, and has deep pockets to chase if things go badly. It is unlikely that a landlord will renew the lease on Glenn’s Lemonade Stand or Foster Brothers if Starbucks has made a bid on the site.

This suggests several things cities need to do to support downtown retail. First, they must decide what type of retail they really want- if they want to recreate the suburbs in downtown, or if they want to revive the historic patterns. Then they need to make sure the retail will be supported by trade area populations- this may mean a housing strategy is necessary to replace the market support that was depleted over the last 60 years. After the location is attractive it may take city support to help local shops compete with national chains. This may mean providing retail education workshops, organizing a business district, or even underwriting leases to counteract the market advantages of national chains.

-gk