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Monday, 02 September 2013 22:00

Retailers hone biz models for urban markets

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Rockford Development’s MoDiv retail space in downtown Grand Rapids offers startup and existing retail businesses a chance to try out a downtown location without having to lock into a long-term lease. The space currently has a waiting list of about three companies. Rockford Development’s MoDiv retail space in downtown Grand Rapids offers startup and existing retail businesses a chance to try out a downtown location without having to lock into a long-term lease. The space currently has a waiting list of about three companies. COURTESY PHOTO

Editor’s note: This edition concludes the six-part series on urbanism with a look at the changing dynamics of the retail environment in cities. The series uses examples across the region to highlight concepts on the minds of local professionals. Practitioners say city building — or placemaking, as it’s often called — is all about people. The way we live, work and play continues to change and the infrastructure around us is always playing catch-up. This series aims to open the discussion about how professionals in West Michigan think the region must adapt to thrive in the new economy.

As developers have turned their attention to adding residential units in and around downtown Grand Rapids, they’re helping to create an environment that’s more conducive for urban retailers.

The reason: Retail always follows people, and more specifically, their buying power.

For a mix of economic, demographic and technological reasons, suburban retailers continue to struggle to react to consumer habits, which are increasingly focused on online buying or are shifting back to more urban settings.

In effect, there is a paradigm shift happening among retailers, said Chris Gerlach, director of public policy research at International Council of Shopping Centers (ICSC).

“In general, the story is that suburban shopping centers are in trouble and people are moving toward urban markets to tap into the opportunity that exists there,” he said. “Other factors like the Internet are driving reduced sales in brick and mortar locations, so you’ve got some problems there as well.”

That’s led some big box stores to experiment with smaller footprint stores as they try to break into top-tier urban markets, but they’ve mostly steered clear of second-tier markets such as Grand Rapids — at least for now, Gerlach said.

“This is a period of change where the growth opportunities aren’t so much in the suburban market,” he said. “They’re in the urban centers and the (big box) retailers are finally willing to look at shifting there.”

Retail follows residential

Locally, Grand Rapids developers are banking on people wanting to move to the core city as evidenced by the recent boom in apartment housing developments. Last month, for example, the Grand Rapids Downtown Development Authority provided incentive support for roughly $94 million in private investment, most of which was going toward housing.

But Kris Larson, president and CEO of Downtown Grand Rapids Inc., said the 284 units that recently received incentives are just starting to scratch the surface of housing demand in the downtown market.

While the number of project items on the agenda for the recent Downtown Development Authority meeting was somewhat of an anomaly, it is definitely a sign of renewed enthusiasm and an example of the positive dynamics and the heightened interest in the downtown, he said.

The momentum of the city’s development is inviting new players to invest in the city, he said.

“The city has the highest occupancy rate for any residential community in the state,” Larson said. “The more vibrant the city becomes as more residents come downtown — that interest isn’t going to wane. It will bring a more virtuous cycle of reinvestment.”

More people downtown means more purchasing power, Larson said, and retailers follow those dollars.

The question remains: Will the influx of subsidized and market-rate housing in the city be a sufficient enough lure for consumer goods retailers and other consumer-oriented service businesses to relocate or open new locations downtown?

Chris Muller, president of M Retail Solutions, a Grand Rapids-based real estate firm, says don’t expect a big box store to set up in the urban core anytime soon.

While he says a store such as a Target or Best Buy or some other department store could one day hit downtown Grand Rapids, the economics simply do not yet work, nor is there enough of a critical mass of retailers to make those kinds of operations successful.

For urban retailers to be successful, they need to have a cohesive environment where multiple stores can compete for customers, but still complement one another and act as a draw, Muller said. Besides, if the traditional suburban retailers, with their rigid footprint and signage requirements, were to try to replicate their suburban models in downtown, the developments would do little to create a sense of place, which helps drive more investment and encourages people to move in, he said.

Retail development as placemaking

That sentiment is reinforced by new research from Herman Kok and Peter Trimp of Netherlands-based Multi Development, whose findings were featured in a recent ICSC publication on retail property. The success of retailers hinges on fusing public space and retail development in urban settings, the authors stated.

Locally, these ideas are gaining traction, Muller said. The trouble that Grand Rapids has, which is common for many downtowns, is pairing places with correct users, he said.

“The city to date has had a bit of difficulty at times because there hasn’t been an emphasis on what should (take certain locations) and what (users) can come later,” Muller said. “For a long time, there has been a sort of shotgun approach to what works.”

That’s led to some starts and stops in the downtown Grand Rapids market, particularly along Monroe Center, which has recently seen the closure of Schuler Books & Music and Van Hoeks Shoes and some turnover in restaurants. At the same time, businesses such as the law firm of Smith Haughey Rice & Roegge, Kilwin’s and City Flats Hotel have redeveloped and moved into space along the corridor.

“Monroe Center is one place we can highlight. Does it have the best mix of users? No, but it’s getting better,” Muller said. “Ionia Street is also galvanizing into a strong corridor. The Cherry Street corridor is another that has done well to define its focus.”

Increased pedestrian friendliness with a mix of open spaces and storefronts make the areas active and sustainable, he said.

When Monument Park is finished, the Monroe Center corridor should benefit from the increased sense of place and activity that will cap both ends of the street, the other end of which features Rosa Parks Circle and the Grand Rapids Art Museum, Muller said.

In the ICSC report, Kok and Trimp explain that good retail design creates a “third place” — an area people like to visit and come back to frequently. When done properly, retail-led urban development can even serve this role when the shops are closed, the authors stated.

Beyond offering their wares, retail developments that include some form of open space can serve a social and cultural purpose in that people want to spend time there, according to the report. An attractive space adjacent to a retail development helps create identity that others want to be a part of and want to help preserve, the authors note.

Taking the leap downtown

While the big box stores struggle to find concepts that work in dense urban areas, local and regional retailers are finding the growing popularity of living in cities is ripe for niche businesses.

Just ask Curtis Sullivan, owner of the full-service comic book store Vault of Midnight.

Sullivan’s Ann Arbor-based company just signed a lease for half of the space vacated when Van Hoeks Shoes closed its store on Monroe Center. Since 2008, Vault of Midnight has been preparing to open a second location, but Sullivan said finding the right location and the right neighborhood fit was crucial to his decision to sign a lease. He said he looked at locations in Chicago, Traverse City and Lansing before opting for downtown Grand Rapids because the “vibe” seemed right and the local businesses appeared to be a good fit for Vault of Midnight.

“Going from one store to two is a big step for a small business,” he said. “We thought about what would make sense and we wanted to be close enough (to Ann Arbor) where the commute isn’t unreasonable and far enough away where we are serving a different and broader market.”

Sullivan is also no stranger to the power of a cohesive urban retail environment. When he moved his flagship Ann Arbor store from an outer neighborhood side street to a location on Main Street, his rent increased considerably, but that was offset by the better visibility and easier pedestrian access.

“In a two-block move, we tripled our rent, but we also doubled our sales our first year in the new location and then doubled the sales again the year after that,” he said. “You have to take some risk to get the gain, and we learned that in action. Monroe Center is super busy, there are lots people walking around, and there is a ton of redevelopment going on. There is great energy here.”

The Grand Rapids Vault of Midnight is set to open Sept. 10, Sullivan said.

Just down the street from Sullivan’s new location, Rockford Development’s MoDiv retail incubator has been experimenting with an alternative approach to retail development in an urban setting.

MoDiv offers startup or existing retailers a way to test out a downtown store and not have to lock into a long-term lease.

So far, the retail experiment is working, said Mike Mraz, vice president of real estate and development for Rockford Construction.

“(The building) is sustainable,” he said. “The entire building is fully occupied and between the retail tenants in MoDiv, the office space and the other retail tenants in the traditional spaces, it’s paying for itself.”

The space, the availability of flexible lease terms and the low cost of entry to the downtown retail market has also garnered its share of interest, Mraz said, noting at least three business currently would like to move into MoDiv. However, none of the current MoDiv tenants are set to move out on their own just yet, he added.

“Nothing at this point is finalized, but we’re seeing growth, and we’ve talked with some tenants about other space we have available. We’ve asked them what’s the next step and we’re discussing that, but they’re all very happy in that space,” Mraz said.

While the company is pleased with the initial success of the retail incubator space, Mraz said he and his colleagues realize it’s only one part of a broader solution to improving the retail segment downtown.

“In the long-term approach, there is definitely a need for the standard space, and I think both (incubator and traditional space) will complement each other well,” he said.

Read 3110 times Last modified on Monday, 02 September 2013 22:12

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