The following article by Strong Towns member Grant Henninger is republished from his blog, On Prosperity's Road, with permission. Grant is the founding principal of Mobius Planning and is a candidate for city council in Anaheim, CA.
The conventional wisdom today is that we’re facing a retail apocalypse. Malls are dying and rents at regional shopping centers are collapsing. At the same time, certain retail experiences are thriving. The challenge many retail centers are facing is that they are largely filled with the same collection of stores, all selling products that can be purchased online, often at lower prices. The antidote to the retail apocalypse is to stop competing on the internet’s playing field (commodity products at low prices) by selling unique, bespoke, and curated items from small, locally owned shops. Unfortunately, the needs of locally owned retailers and chain retailers are significantly different, both within their retail space, and how the entire building and development sit within the context of the community.
1. Local businesses and developments need local financing.
In commercial real estate, as in everything, form follows financing. For new commercial and mixed-use development, the only new developments that are built are ones that can be financed. For most new developments, banks require signed leases from chain retailers before they’re willing to provide a loan for construction. (These chain retailers are also often called “national credit tenants.”) These larger chains probably won’t break a lease and go bankrupt, or at least if they break the lease they’ll pay the required penalty. This gives the bank some assurance that the new retail center will have some tenants and cashflow once construction is complete.
Unfortunately, these chain retailers often require a level of design and construction that is incompatible with the needs of smaller and locally owned businesses. The most visible sign of this is that chain retailer require twenty feet or more from the floor to the roof, and floor to ceiling windows with metal casings. Achieving these design standards requires that the building be constructed with steel and concrete, or at least concrete block. This type of construction is much more expensive to build than the type of wood framing you’d find in a typical house. This additional construction cost is then passed on to the tenants in the form of higher rent, which smaller and local businesses often can’t afford.
In addition, these retail centers also often have suites that are too large for many smaller businesses. A typical depth for a new retail space is sixty feet. Even a very narrow space of twenty feet requires that a small business lease out 1,200 square feet. This is three or four times as much space as is needed for many new businesses.
A good example of the small spaces new businesses need is Kinko’s. When Paul Orfalea opened the first Kindo’s near the University of California, Santa Barbara in the 1970s, his space was so small that he had to put his copier on the sidewalk while he was working. From this tiny space, Kinko’s grew into a multi-billion dollar business and was eventually purchased by FedEx, where today it goes by the name of FedEx Office. Without the tiny space in Isla Vista, Kindo’s would have never existed.
The only way to change the types of retail spaces that are being built, and to make them more suitable for small and local businesses, is to change the demands of financing. National banks will always play it safe, and for them that means relying upon national credit tenants so they minimize the chance of losing their money. Unfortunately, this approach does not maximize the value for our communities and it does not optimize our outcomes. In order to build real estate that serves the needs of our local community, we need a local source of financing. We need local financial institutions that see a grander vision for our community, and who understand how thriving locally owned businesses raise the quality of life for everyone living there.
2. Local businesses need welcoming, walk-friendly streets.
Not only do the design of the actual buildings matter, but the way the neighborhood comes together around the building is just as important. Many chain retailers, especially the big boxes and restaurants, can serve as destinations in their own right. People will willingly get in their cars and drive to these businesses. Unfortunately, smaller locally owned businesses have a much harder time becoming a similar type of destination on their own.
Small shops need to be located in close proximity to one another, where it is easy to visit multiple shops on foot. In essence, a collection of small shops becomes a department store, simply located in separate suites. To create such a distributed department store requires the careful arrangement of stores near one another and a street system that promotes walk appeal.
Commercial centers that cater to small businesses need a strong manager to curate the types of stores so that they support one another, instead of taking business from one another. The manager also needs to have the ability to coach and mentor the business owners as they start and grow their shops, and turn the neighboring businesses into a support group to help ensure mutual success.
But the manager, the business owners, and the developer can’t do this on their own. If the neighborhood does not have walk appeal, then it will be difficult to get customers walking from one shop to another. The large indoor malls did this to great effect, it became easy to walk from one store to another in a comfortable environment. For most retail spaces, the neighborhood environment is largely defined by the street and the parking lot. If the street is made to a human scale, rather than a car scale, then it can become comfortable and developers will be willing to place their buildings facing the street without a large buffer, often accomplished through the use of a parking lot.
The first step towards encouraging the growth of small and locally owned businesses is to make roads human scaled. The goal is not to move people through your towns retail areas, but to support the businesses in those areas. Do this by slowing down the cars, narrowing lane widths, widening sidewalks, adding bike lanes and parallel parking, and by growing an urban forest to provide shade and cleaner air to the pedestrians walking from store to store.
Once a community has changed those standards for their built environment, it needs to figure out a way to build local sources of financing so it can keep its wealth local. By taking these two simples steps to ensure that streets have walk appeal and to create local sources of financing to build retail space that caters to local businesses, any town can create a thriving small business community.
(Top photo by Johnny Sanphillippo)