When Toys R' Us closed, it seemed like just the latest in an unending onslaught of retail giants closing, leaving strip malls and shopping centers with enormous vacancies - not to mention the loss of jobs and tax revenue for the cities and towns they are located in. After Toys R' Us filed for bankruptcy and closing their stores, they will vacate 735 stores and lay off over 31,000 employees. It's a staggering number when put into this context: with the average size of a Toys R' Us store at 35,000 square feet, Toys R' Us is vacating nearly 600 acres of retail space - over 50 acres larger than the entire neighborhood of Old City Philadelphia (Walnut to Spring Garden, River to 6th), and that doesn't include the normally immense parking lots. From a real estate leasing perspective, it's a nightmare. From a planning/economic development perspective, this is just the first wave of a coming tsunami of retail/big box stores that will be closing in the coming years.
When Radio Shack closed/became Sprint stores, it was an economic impact, but with most Radio Shacks having small footprints, it wasn't quite the leasing problem. Radio Shack had over 7200 stores - it now has 70 - but each store was only 1500 square feet. The impact of Radio Shack on a national level was half that in terms of square footage, and on a municipal level, leasing a white-boxed 1500 square foot store is what they call in the business "an easy commission".
What came with Toys R' Us though, which hasn't happened yet on a national scale, is the full-wave closure of huge retailers en masse. It's starting to happen with Sears, JC Penny's, Macys - but none of these companies have fully closed up shop - yet - but many will. Market Street in Philadelphia is littered with the remains of buildings that housed major retailers back in the day - Gimbels, Strawbridges, Lit Bros - they all, for one reason or another closed. These and other retail companies will unfortunately face the same fate - not because brick and mortar retailing is dead (if Amazon is buying Toys R' Us locations and opening its own stores, that's proof it isn't) - but because tastes, preferences, and human geography changes.
It's a massive economic question as well as a practical planning problem - what are we going to do with all this dead space? If the website DeadMalls.com is anything to go by, America hasn't really figured out a proper answer to this problem. They list HUNDREDS of vacant, derelict shopping centers, accounting for tens of millions of square feet and thousands of jobs. There's a few examples of shopping centers being reused - medical offices, schools, and one example I find particularly interesting is a greenhouse. Residential is also trotted out as a preferred reuse, though with the general lack of external windows residential is a tough conversion process and needs the right type of store.
So, what are we going to do with these, and other stores? Here's my top 3 ideas for reusing dead department and big-box stores:
1. Warehousing and Distribution Centers
As mentioned, Amazon's buying Toy's R Us. Whether they want to use them for brick and mortar retail remains to be seen - but with thousands of these stores littered across the country, what a better strategy than to use these stores for logistics? They come with built-in loading docks, loads of parking that can be cannibalized for the industrial use, are often located adjacent or close to major arterials, and have clear-span floor plates (means few columns) that allow for easy storage set up. This of course works best in warehouse type stores (Best Buy, Sears), but given the proliferation of online retailing, allowing these spaces to be reused for shipping centers is a better use of land in my opinion than building a new million square foot facility on farmland.
2. Extreme Sports & Experiential Gaming Venue
It depends on the size of the facility, but given the trend towards experiential activities (think axe throwing, escape rooms), these stores would be perfect for skilled operators to cobble together a few uses and make them into full "fun houses" in a manner of speaking. The parking lots could be out-door go-karting tracks, inside there could be escape rooms, axe throws, and on the roof could be rappelling. It's hard to expand this many uses to a mall, but for the right store in the right location, one could make it work.
3. Urban Farm
As the organic foods movement continues to pick up momentum, the demand for cheap, quality, non-pesticide food will get louder and louder. Enter the shopping mall farm. Cannibalize the parking lot for planter beds, while inside there can be processing facilities for canned and frozen goods. Even enough room for chickens too I would imagine - though zoning would be tricky. The appeal to local restaurants and the general public to buy fresh food from the farm without having to wait for a farmer's market is a strong incentive. Maintaining good relationships with the neighboring T-Mobile store though may be somewhat challenging if there's actual livestock though.
So what do you think? Do you see yourself at a Best Buy Urban Farm one day? Or perhaps JC Penny's extreme emporium is more likely? Have another idea you think is more practical?
Leave your comments below!
So, it's kinda official - Starbucks is going to open a new store in Fishtown, at 1405-21 Frankford Ave (the site is currently under construction). As noted in the article, it's about a block north of the La Colombe flagship store, and a few blocks away from Reanimators Coffee (my personal go-to in the area). What's most amusing though, is the reaction that this announcement has brought out among the local residents - or at least those that are on social media.
There's two camps, though one is certainly much larger than the other - on social media comment pages at least. Camp A is vehemently anti-Starbucks, and they oppose the company on various grounds (no pun intended) including arguments of gentrification, amplifying current racial tensions between the company and general public, and a general disgust for chain restaurants/perceived homogenization of the urban environment. Camp B is less pro-Starbucks than they are nonchalant about them locating in the area. These people are more nonplussed, pointing out that there are already chain restaurants in Fishtown (Dunkin' Donuts, McDonalds, and an existing Starbucks inside the Acme at 2nd & Girard), as well as noting that as a capitalist society businesses are free to locate where they believe they can make the most profit.
In my opinion, both sides have reasonable points - but there's a deeper question under all this: is this location actually a good spot for a Starbucks? Ignoring the current firestorm of racial tension that the company is going through in Philadelphia (which is admittedly hard to ignore), I couldn't resist sitting down and putting the green mermaid from Seattle through SSC's own process for site selection.
In order to determine if Starbucks (or any company really) should actually locate in Fishtown, SSC runs the following analyses:
1. Competition Analysis - what's there that would compete and how well are they doing?
2. Demand Analysis - are there customers that want what's being offered, and how many of them are there?
3. Customer Profiling - what're the type of people that live nearby that would be customers?
4. Market Potential - do those potential customers have the money to spend or is the market saturated?
5. Forecasting - if the customer isn't there now, will they be in the future?
So, is Fishtown a good location for the coffee giant? Let's start with Competition Analysis.
1. Competition Analysis
In terms of direct competition - there's quite a lot in the area - though none of which really compete in Starbucks' frozen/cold/specialty drink sector. Certainly, La Colombe is the biggest and closest, but even they don't offer the variety and scope of Pumpkin Spiced Lattes that S'Bux does. Other competition nearby includes Reanimators as mentioned, Steap and Grind, Milkcrate, and One Shot Coffee - all in all around 10 stores in a 1/2 mile that would sell coffee first and foremost, as opposed to restaurants that serve it as a compliment. Ironically, the closest competition in terms of offer, Dunkin Donuts, is on the periphery of the neighborhood, and the other competition (McDonalds) doesn't offer the same type of in-store atmosphere. It was surprising when doing the research - but the biggest competition for a Starbucks is really itself at the Acme - and few people would venture into a grocery store just for a Frappucino. Those Starbucks Acme customers are making an impulse buy while doing other shopping.
While Starbucks does sell food and other retail merchandise - it's still drinks that make up the bulk of their income - and the Frappucino by itself makes up around 20% of their total revenue. Honestly, if I was engaged by Starbucks to do this research - I'd already be encouraged by these findings.
2. Demand Analysis
So, with the competition strong in the general coffee sector but weaker in the specialty drinks arena, SSC then needs to proceed to the demand analysis - that is, is there no competition because there's not really a demand for the product?
The answer? There's absolutely demand for the product, and in the immediate area as well! ESRI's Business Analyst actually has information on how many people visit/buy Starbucks products and then crafts models on predictive behavior. I looked at the two variables - people who buy/use the pre-packaged Starbucks coffee and also those who have visited a Starbucks in the last 6 months, at rates higher than the national average. Amazingly, that area of Fishtown and Olde Kensington actually had very high rates of people who purchase Starbucks products (the areas in blue). Furthermore, there are over 11,000 people that live an estimated 10 minutes walk-time (about 1/2 mi) from the proposed location, with a median household income at ~$50,000, which is about $5,000 higher than the City as a whole.
In short - the areas in blue above show concentrations of people who have both the inclination and the income to buy Starbucks. So, there's demand for the product, but, do those customers actually want Starbucks, or do they buy it because due to their sheer number of stores, it's convenient? For that answer, a customer profiling of the neighborhood is required.
3. Customer Profiling
ESRI has what's called "Tapestry Segments", which essentially outline the mindsets and other behaviors of consumers, based on spending patterns, demographics, and other variables. In the 10 min walk area mentioned, there's four different segments: "Trendsetters" (23.7%), Emerald City (19.9%), Front Porches (18.2%), and Old/Newcomers (13.0%). Together, these groups account for over 75% of the local population. But, what does any of this mean?
Well, Trendsetters would be a challenging demographic for Starbucks, as "image is important to these consumers," and they are "socially and environmentally conscious...are willing to pay more for products that support their causes." These are likely the people responsible for the most vocal backlash against a new location - but they are less than 25% of the total customer market. Emerald City people are similar to Trendsetters, but they're older, and have a bit less disposable income. They're conscious of nutrition and environmentally friendly products, but are less ideologically motivated for their purchases. Front Porches are blue collar individuals and families for whom "price is more important than brand names or style," and "are not adventurous shoppers," - which may make them both less and more likely to visit a Starbucks depending on whether they would consider a Unicorn Frappucino an adventure. Lastly, Old and Newcomers are an older subset, mostly single households, and 32% of these households are on Social Security. They're "price aware...but open to impulse buys," which makes that coffee jolt a bit harder for these individuals to turn down.
In summary - of the roughly 11,000 people who live within a short walk to the store, less than 25% would really be unlikely to be a Starbucks customer by ideology. The rest of the neighborhood would have a mix of people that are either fans of the brand or indifferent - which confirms what we already suspected with the demand analysis. With a revised likely customer base of around 8,000 people, not including visitors to the area on a daily basis - it still makes sense for a Starbucks to be located in Fishtown. In theory...
4. Market Potential
So, the competition is relatively weak, demand is pretty good, and there's not enough people who hate the brand to be enough of a deterrent to open. All great stuff - but more research is needed before making a confident recommendation. For that, financial projections are necessary - what's the market doing and is there actual room for a new operator?
Leakage is a term that's used to describe when consumer dollars are leaving a community to be spent on products outside it. It's a good metric for whether there's scope for a new business to come in and operate. Looking at the Supply/Demand metrics for the area, there's an estimated $676,000 surplus (red numbers) for Special Food Services and over $7m surplus for Restaurants/Other Eating Places. It's hard to determine where Starbucks would fall between those two definitions, but it's a safe assumption that the area is pretty well served in the cafe/restaurant category. While this doesn't mean SSC would recommend against a Starbucks locating here, it means that there's not a ton of room for error, as their customers in part are likely going to be pulled from other nearby competition who prefer the convenience of this new location, or had preferred Starbucks' offer from the beginning. Now, there's just one last piece of research crucial to a thorough recommendation - forecasting.
So, the market may be saturated, it may not be - but what's expected for the future? Real estate is a long game - is there enough growth coming that could offset these numbers in the next 3-5 years?
Well, population growth to 2022 is projected to be about another 1,000 residents - which is good growth but not astronomical. Household income though, is projected to go WAY up - from $50,000 to almost $60,000 per year, and vacancy is projected to go down by 2% falling from 8% to 6%. This means that the area is going to become more densely populated with rising wealth - people who can buy that $5 latte.
While no one knows FOR SURE what the future will bring - it's at least a reasonable assumption that if things keep going the way they are in the neighborhood, Fishtown/Olde Kensington is going to be a more densely populated, increasingly affluent community.
So, after all that, what's the outcome? If SSC was advising a client (in this case, Starbucks), the report would say that opening a store would come with moderate risk. Competition is generally strong, but specifically weak in the variety of offer Starbucks provides. Demand for the product is solid, and customers opposed to the brand are limited in number. The market appears saturated today for another coffee shop, however future population and income growth could mitigate that risk in the future. From an operations standpoint - the store would do well to more heavily market its cold, frozen, and specialty drinks, as well as its line of healthy, organic convenience foods to take advantage of the consumer preferences and gaps in the market. Strong community outreach and engagement would also be advised to help mitigate any current ill will that exists in the neighborhood.
So what do you think? Do you think the Green Mermaid will thrive in Fishtown, or will she be filleted by the locals? Leave your thoughts in the comments!
Sears is closing another 72 stores in the coming months - which is sad for those who are employed by the decaying retail giant and the towns that they are located in. Somehow, the company still hasn't decided to go the Toys R' Us route and call it a day - filing for bankruptcy and wrapping up the entire company. How much longer can the company keep going like this is anyone's guess - though I did predict they'd be the first one to go in the big box retail armageddon we've been seeing recently.
I think we can safely assume that Sears doesn't have much longer to go as an American retail brand. So, with its unfortunate demise now really a matter of when, and not if - what memories do you have of the company? Good, bad, indifferent - what will you remember when Sears is sadly just a memory? For me, it'll always be that jingle - "Come see the softer side of Sears...". Leave your thoughts in the comments!
General thoughts and musings about the work SSC Solutions does and other things happening in and around Philadelphia