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By Douglas Moran

Retail - basics of public policy

Uploaded: Mar 25, 2016

"Retail loves retail" is the basic maxim you will hear in a discussion of planning for retail districts. It is analogous to critical mass for nuclear explosions: It is not just quantity, but how it is arranged (a nuclear power plant contains multiple times the critical mass, but dispersed and moderated). What surprised me most in presentations on retail policy was how important small differences in layout could be. First, even small interruptions/gaps between stores could produce noticeable deceases in the business for the stores on both sides (the presentation didn't quantify). Vacant/remodeling spaces at shopping malls often don't register with shoppers because many mall managers put up window displays to maintain an illusion of continuous retail. Some cities--the government or business district association--do the same. In Palo Alto, the occasionally enforced retail policies--ground-floor retail and retail preservation--are intended to maintain not just the quantity of retail, but contiguous retail. One way to visualize the effect is to compare a traditional Walgreens store--solid walls with a few horizontal slit windows high up--to the one on University Avenue where they were encouraged (required?) to have more windows. The University Avenue store also has different window schemes on its Bryant Street side and University Avenue side (fewer and to me less appealing).(foot#1)
Visualizations via Google Street Views:
-- Conventional Walgreens, 4170 El Camino (at Maybell).
-- Walgreens, University Avenue and its Bryant Street face.

Another way to visualize the psychological factors in separation distance is to consider department stores: One of their big advantage over a street lined with shops corresponding to its departments is that is much easier to move within the unified store. And while most categories of individual shops fail/do poorly on upper floors, upper floors in department stores thrive, although you will notice that there is a certain consistency about what merchandise is found on which floors.

Another surprise to me was how big a factor the grouping of stores was. One of the advantages a shopping mall or center has over downtowns is that it is under a single manager who has control over what stores go into what locations and is able to use extensive research on this topic in making those decisions. The obvious example of the advantage of grouping are restaurants: The cumulative business is better when they are grouped versus when dispersed. A surprising example of the same effect was women's shoe stores. The presenter went on to say that having women's shoe stores next to restaurants hurt the business of both. When asked why, the presenter declined and said it was simply statistics.
So our starting maxim needs to be modified to "Retail loves retail, but not equally."

Many people are aware--typically from frustration--that grocery stores are laid out so that the most common purchases are widely dispersed, forcing the shopper to walk through much of the rest of the store, thereby increasing the likelihood of additional purchases. Mall and shopping center with professional management also consider improving "foot traffic" for all their merchants in deciding on tenants and their locations. Some cities have aggressive business development offices that work with landlords and property managers to make such expertise available. Palo Alto doesn't. In several instances, neighborhood associations have made attempts to fill that gap.

Recognize that retail layout needs to accommodate many different shopping styles. There are people for whom shopping is entertainment or a social activity, and they spend lots of time browsing/hunting and examining/discussing potential purchases before deciding on that "one perfect item/gift". Then there are those who know essentially what they want--get in and get out--and are simply re-validating their choice (for example, the item hasn't gone from a quality item to re-badged junk).

Having concentrations of retail is not only important for the survival of those businesses but also facilitates their customers combining multiple trips into one. Trip-combining is most often mentioned in terms of people doing shopping and similar errands as part of their work commute. However, trip combining also applies to shopping at multiple stores, especially when it is done during a single stop. And for multiple destinations in close proximity (single stop), it applies equally to those getting there by bicycling, public transit, ... because each of those has substantial costs (time = money) for each stop. My section of Palo Alto (southwest) is hard hit by the decrease in local retail (closing, migrating outward), and many of the people I talk to say that it is increasingly rare that they can shop at two places in the same stop.

Shopping malls and cars:
Urban planners decry shopping malls as "auto-oriented", when they are in fact pedestrian-oriented (as the name "mall" indicates). Although some people enjoy the jostling of crowded downtown sidewalks the crush while waiting to cross streets, and the pounding rain during the holiday shopping season, many don't. Shopping malls are designed for a vastly better pedestrian experience. Various cities have tried to replicate some of that by converting some downtown streets to pedestrian malls (most open-to-the-weather).

Another advantage of shopping malls and centers was that convenient parking allowed cars to be used as storage lockers: If you made bulky or expensive purchases in one store, you could deposit it in your car before continuing shopping or going to a restaurant. Notice that the advocates who claim that public transit/taxis/Uber/Lyft/... are equivalent to a personal vehicle are ignoring this aspect.

And when it comes time to transport your shopping home, a car has many advantages for those traveling much of a distance. Most subway turnstile are not designed for people carrying non-trivial packages, unless they are physically strong or over 6 feet tall (experience in SF, Boston, NYC and Chicago). Transit agencies don't buy buses designed for people carrying packages--observe the difference between a VTA bus and the bus serving rental car companies at most airports. In addition to being inconvenient, if not downright difficult, for the person with lots of shopping bags, the difficulty of boarding and paying the fare slows down travel time--my experience has been that in such circumstances, the bus spends more time in boarding than traveling.

The limitations imposed on shopping by public transit and bicycling affects the lifestyle of the people living there.(foot#2) This in turn influences who chooses to live there, which in turn further influences the types of shopping available.(foot#3)

Parking in shopping districts
For various categories of stores in shopping districts, convenient open-air parking is important to their businesses: Shoppers have a level of resistance to using parking structures (various psychological factors) which can be a significant factor for quick in-and-out trips. Many local merchants are well aware of research on this, but don't know enough of the details to be able to engage in an involved discussion comparing options and tradeoffs. City Hall has long avoided acquiring the expertise to make more than seat-of-the-pants decisions.

Chain stores/Formula Retail
Whether there should be limits on chain stores in retail districts has been a major issue, especially for California Avenue. Part of the problem is that when a building gets replaced, the retail that was there is likely to be replaced by a chain store. This is partly a side-effect of loans being globalized--the maker/buyer of the loan needs to understand the risk of the tenants not being able to pay the rents. In the old days when it was a local bank making the loan, they could assess the prospects of a local merchant. Now, having the tenant be a national chain makes it easy for the rating service located in New York, London,... First, in the case of franchises, many national chains guarantee the rent should the store fail--one of the services the chain provides the franchise owner is extensive marketing research on the location, and consequently the chain regards a failure as more likely to be a problem with the store's owner/manager than the location, and will often consider putting another franchisee in that location. Second, chains have a well-developed business model and are less likely to fail--not they don't occasionally miscalculate (grocery stores have been notable local examples). Third, if there is a problem, the rating agency has the excuse that they were simply going by the data, rather than having made bad judgments.

In a shopping district of smaller stores, a variety of chain stores can play the role of "anchor stores" in shopping centers and malls: They can provide foot traffic as a result of their marketing strengths of name recognition, existing customer base and chain-wide advertising campaigns. The basic problem is how to avoid having an excessive number of chain stores in a district, with the subsidiary problem of how you determine what is "excessive" and what qualifies as a "chain store" for these purposes. On the latter point, there are many stores that people don't realize are part of a chain because the locations are far enough apart that their advertising and other marketing is the same as for a local store.

Then consider a merchant who is successful in a downtown and opens similar store in a nearby mall. Is that now a chain? Or is the threshold 3? 5? ... Suppose we say 5. Now consider a celebrity chef who opens 4 copies of his primary restaurant: Same menu, same decor, ... That's a chain. Now consider a multi-generational Mexican-American family that collectively owns 5 restaurants, but each of the restaurants reflects the personality of the family member/in-law managing it: different decor, different menus, different price ranges, ... Should that be regarded as a chain? (to me, no)

Some national chains have some of their stores owned and operated by the parent company, and some by franchisees, and some franchisees own multiple stores. Are franchisees to be counted independent of each other and the corporate parent, or is the count based upon the formula used by the stores. If the former, a McDonald's location that was one of four owned by the same person would not be a chain (continuing our example threshold of 5), but a location that was one of six would be a chain.

And you thought you knew what a chain store was.

Not all locations are prime, and that is good
In any shopping center, mall or district, there are prime locations that are its core. There you find stores that produce the revenue--through volume or mark-up--to pay the rents corresponding to the location.(foot#4) But as you move away from that core, you find stores that can exist because they don't have to pay prime rents. In many cities, these stores may be only a block or two from the street crammed with luxury stores. This has been my experience in the cities I have lived in and those I have visited on business and as a tourist. I long ago learned that the side streets and parallel streets offered the more interesting (and affordable) stores and restaurants.

While the peripheral stores can benefit from the visitors attracted by the high-end stores, the high-end stores benefit from the occasional purchases by locals who frequent the peripheral stores and hence "are in the area".

Retail and community-building
Urban planners have long recognized the important role of retail in creating and maintaining a sense of community through the impromptu encounters and subsequent discussions. The designers of shopping malls recognize that their customers value this and their designs facilitate it to the extent that in many communities the shopping mall is the de facto teen center. In contrast, the plazas in many downtowns are under-utilized, either because they are unattractive or designed to accommodate too few people (example, minimal seating).

A decade ago, a colleague (who grew up in India) was hired by a Computer Science department at a university in the Southeast (Arkansas, Mississippi, Tennessee?). As techies, he and his wife could easily have done much of their shopping online, but they made it a point to do as much shopping as practical locally to become known to the community. Ask yourself about how many times you encounter neighbors (and other acquaintances) in stores, and is it anything more than a greeting in passing? And how many of your neighbors would you recognize if you were to pass them in a store? When I ask the first question of people from southern Palo Alto, the answer is that encounters are infrequent, and mostly in stores outside Palo Alto (predictably, most cited encounters within Palo Alto are at grocery stores).

There were already concerns about maintaining critical masses of retail when I first became involved in Palo Alto politics in the early 1990s--the south El Camino Business District was already in trouble and became a focus of several workshop during the development of that Comprehensive Plan. The result was nothing was done (repeatedly). The problem of conversion of retail to offices was allowed to become a crisis during the DotCom boom, with neighborhoods taking the lead in highlighting what was happening. City Hall got around to reacting only in time for the crash, thereby ensuring that little would be done to prevent a reoccurrence.

Mayors are allowed to establish an ad hoc committee to pursue their priority and in 2004 Mayor Bern Beecham made his focus be retail. The committee--on which I served--came up with a series of recommendations, big and small. The then-City Manager managed to ignore them.

A year ago, there was a pair of City-sponsored workshops on the future of retail in the California Avenue District. The first was on March 11 in a meeting room at Keeble & Shuchat and targeted at the merchants. The second was a few days later at Escondido School and targeted at residents. However, some members of both groups attended both meetings (I attended both). Both meetings got ugly because Staff allowed one attendee to interrupt and hector other speakers (he would have fit it at a Republican Presidential debate). That bullying was especially troubling because it came from a member of one of Palo Alto's leading property management companies, and because what I inferred about the agenda he was promoting and that Staff was acquiescing to.

He advocated having a very small retail district, arguing that stores on the side and parallel streets would pull business away from Cal Ave itself. He argued for substantially more offices on the surrounding streets to provide customers. It was pointed out that Cal Ave seemed to be dropping below critical mass--that people who had been regular shoppers there found themselves rarely going there because it had only one destination of interest to them, and was increasing out of the way of any of their other trips (negative trip-combining). Discussion of this was suppressed by interruptions.

Discussion of the issue of chain stores went nowhere. First, Staff allowed him to frame it as a binary question of either none or unlimited (nothing in between), with "none" being unacceptable. Second, when several of the Cal Ave merchants attempted to make some sophisticated observations about the desirability of chain stores, but were pummeled with demands "Would you like a Starbucks next to your store? Answer me 'Yes' or 'No'!" Third, the term "formula retail" is an attempt avoid the potential misunderstandings in "chain store", but he insisted on using "chain store" and insisted that it didn't apply to franchisees, thereby dismissing the serious concerns of many of the attendees. He then argued that chain stores were necessary because local stores couldn't succeed, citing the recent failure of one store. Two of the merchants asserted that failure was the result of the owners having no previous experience in retail, and the learning curve being too steep--but he would have none of that. As I said, it was ugly, ugly, ugly.

The Chamber of Commerce was represented at these meetings by its CEO Judy Kleinberg (a former mayor). She was pushing to make less provision for parking, arguing that there would soon be a sharp increase in people using Uber and public transit for shopping. She also advocated incentivizing redevelopment, claiming that the merchants would benefit from reduced operating costs of "green buildings." No consideration for the capital costs (money and carbon footprint) of redevelopment, nor that redevelopment usually entails departure/closing of the current retail businesses.
Note: Over the years, I have heard multiple retailers say they regarded the Chamber of Commerce as an enemy--its leadership is dominated by developers, real estate interests and their allies (such as architects) and consequently this is reflected in their policy agendas. I was told that the California Avenue Area Development Association was created as a counter to the Chamber of Commerce.

A traditional business district hosts many small business that mutually support each other both in attracting customers and in a web of buying and selling to each other. University Avenue has come to be dominated by a few big businesses and and there are complaints that it is closer to a hybrid office park and entertainment district than to a conventional business district.(foot#5) There are concerns that the California Avenue area is well on its way to being another de facto office park, with the market forces further shifting it away from serving residents. But this is a big topic--perhaps in some future blog.

1. I am not criticizing Walgreens: The architecture of solid walls is very common among "big box" and even "medium box" stores (hence the name "box"). Their marketing scheme is to be a destination that does not require window displays to bring in customers, and to use the inside of the exterior walls for product displays.

2. I know from experience living in England. My side of town was served only by small shops (separate butcher, green grocer, baker, ...) that were typically closed by the time I got off work, and thus I had to shop on my way into work. Because several of us were in the same situation, the office had a refrigerator for our purchases.

3. A useful exercise is to pick an admittedly extreme example to highlight what might be factors in more common situations. My example: I have a vegetable garden, and although I do composting, it doesn't produce enough for my needs. The recommended annual amendment for a 6'x8' garden is 6 cubic feet of chicken manure (or equivalent), with the typical 1 cubic foot bag listed as weighing 35 pounds, for a total of 210 pounds. My bike isn't designed for that, and I wouldn't inflict that on a taxi/Uber/... driver, even if I thought they felt they couldn't refuse me. That leaves the bus ("Transit for those who have no other choice"). The closest garden center (11 minute drive) would require a transfer between buses, so that is disqualifying. There are garden centers in Mountain View near Highway 85, a 15 minute drive from my house, but about 40-60 minutes by bus each way (Google Maps estimates): 17 travel time by bus, 7-10 minutes average waiting time for the bus, total of 13 minutes for unencumbered walking time at both ends (0.7 miles), which is likely more than doubled muscling 210 pounds on a hand truck. No guess about amount of time need to board and disembark.
Not a gardener? Think about a major trip to Costco, or to a grocery store for a big Thanksgiving dinner party.

4. An exception may occur in some shopping centers for a grocery store that is an anchor store: It may pay less per square foot because the high level of foot traffic it generates creates business for the other stores allowing them to pay higher rents.

5. Highly cited discussion (ignore the teaser and hype related to CIA): The CIA-backed start-up that's taking over Palo Alto by Ari Levy and Josh Lipton, CNBC, 2016-01-12.


An abbreviated index by topic and chronologically is available.

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