Urban March

One of the most fascinating aspects of our ongoing economic recovery is the paradigm shift with respect to commercial development priorities. In the wake of the recession, new development has largely taken a backseat to redevelopment as developers and retailers alike have set their sights on opportunities in core urban markets that have been historically underserved.

Before the downturn, we saw a large number of new retail projects planned in suburban or exurban areas. In fact, the “boom” mentality had taken hold to such an extent that many of those developments were planned assuming future population growth — the retail was there before the “house-tops,” and before the market could really support it. In retrospect, it seems clear that building the top floors of the house before the foundation was bound to catch up with the industry. Sure enough, when the recession hit, not only had many of those projected households never materialized, it seems clear that in many cases, they never will.

At the same time, many brands have been downsizing and experimenting with smaller and more efficient formats and floor plans. In other words, they are moving toward the store footprints and merchandising concepts that succeed in city centers. That gets us to what I see as perhaps the biggest factor of all: opportunity. Even today, many urban areas are significantly under-stored and under-retailed. Think about the astonishing fact that, for several years, Detroit had no chain grocery stores! This in a city of over 700,000 people.

Put all of those elements together — suburban overexpansion, recession, smaller formats — and it’s not hard to see why urban redevelopment seems to be gaining momentum.

While, to some extent, larger forces have encouraged this change in focus, there is no doubt that retailers and development professionals deserve some credit for their willingness to adapt and evolve. The one-story big-box formula has given way to a wide range of new formats and concepts, almost all of them smaller and ready-made for a more urban context.

This creativity and downsizing has led to multi-level urban Target stores, new Walmart locations in Washington, D.C., and the much-discussed opening of a new Whole Foods in Detroit. In the case of the Detroit Whole Foods, the chain not only went with a smaller store size, but also with a more edited and strategic merchandise assortment specifically designed to meet the needs of a market with a larger daytime population. Since its opening in June 2013, the store has exceeded the company’s expectations and shown the consumer appetite for what some may see as a counterintuitive location choice. It is encouraging to watch retailers challenging their own assumptions about what works and where it can work, and realizing that they can be successful appealing to new demographics.

The result of this redevelopment focus is that we are seeing a true revitalization of underserved markets (even in areas where retail selection has been so poor for so long that many urban residents were essentially forced to shop in the suburbs). Together with the improved mass transit facilities in many cities, this can form the beginning of a redevelopment “cascade”: retail and residential and infrastructure working together in a self-reinforcing cycle. With more demand — and more retail resources to meet that demand — the potential is there for long-term positive impact on the urban core.

My takeaway from all of this is that, on the whole, we are not necessarily over-retailed. It’s more about certain categories and locations and formats that may have been overdeveloped. That said, I don’t believe that chains will add stores in a healthy way without a clear strategic approach. The continuing success and growing popularity of new urban store concepts and redevelopment opportunities makes me think that retailers will need to continue to be more data-driven, thoughtful, and flexible with respect to their expansion plans.

Jeff Green is president of Phoenix-based Jeff Green Partners, specializing in retail real estate feasibility, retail expansion planning and market analysis. His regular Chain Store Age column, Retail Rap, can be found on chainstoreage.com/real-estate.