Galveston Economic Report
David Stanowski Publisher
Will Not Survive
by David Stanowski
27 December 2010
Ewert and Company has created a downtown revitalization plan that calls for spending $72.4 million in public money (see table below) to make downtown Galveston a successful shopping and entertainment district. This is an admirable goal that will be worth the investment if it can actually be accomplished.
However, there are serious questions about whether or not this city has the right demographic profile to allow this to happen, and/or a method to draw enough tourists.
This article attempts to outline certain critical steps that must be taken to give any downtown revitalization plan a chance of success, and specific changes that need to be considered BEFORE the Ewert and Company plan is funded with taxpayer’s Dollars.
The people of Galveston are dedicated to the preservation of the magnificent historical buildings on the Strand, and in the greater downtown area, so any downtown revitalization plan must focus on ways to help downtown businesses become and remain profitable. A vital downtown begins and ends with the creation of a sustainable and dynamic economic engine.
If these businesses do not make a profit, they will fail, and the buildings will become empty, leading to their eventual ruin and destruction. No amount of wishful thinking, government assistance, philanthropy, and private grants will keep downtown Galveston healthy, functioning, and vibrant without profitable businesses.
The historical ambiance created by the buildings is the unique feature of the district that must be fully utilized to give it an advantage over other shopping areas.
When I published my first article on local retail sales, in October 2007, no one was shocked that they were below par, but many were surprised at just how bad they really were.
Since I do not pretend to be an expert on the retail market, I went looking for someone who understood that downtowns needed to be profitable to survive, and how to help them do just that. The name that came up in many articles was Robert Gibbs. He is an internationally renowned retail consultant who started in the business by working for shopping centers, but in recent years, he has spent more time on revitalizing historic downtown shopping districts. Gibbs Planning Group has performed more than 200 urban retail studies since 1988. One of their best-known revitalization efforts was their 2002 plan for King Street in Charleston, SC.
Gibbs says that for historic downtowns to be successful, they must be guided by retail experts, and NOT by urban planners, or historic preservation architects. Those professionals can certainly “preserve” these areas for a period of time, and make them look good, but they often make changes that greatly hinder the flow of commerce, in the district. Without profits, downtowns will not survive no matter how good they look!
The good news is that consumers are tired of suburban shopping malls. They are yearning for more authenticity in their lives; so many new shopping centers are being built as "New Urban" shopping centers, aka Lifestyle Centers or Village Centers. They attempt to simulate the look, feel, and function of downtown areas with a mix of retail, restaurants, night clubs, and residential.
Examples of successful "New Urban" Shopping Centers:
Phillips Place; Charlotte, NC
Mizner Park; Boca Raton, FL
Mashpee Commons; Cape Cod, MA
Obviously, the most authentic way to achieve this mix is to revitalize historic downtown areas. Many national chains want to penetrate urban markets, but they are often frustrated with the cumbersome permitting process, and other restrictions in some cities.
Without a vibrant retail market, most downtown areas can only support a mix of bars, night clubs, and restaurants, and are largely unused during the daytime. This does not tend to maximize the economic activity in the district, so it usually is only "chosen", by default, if a city fails in their efforts to become a retail center.
The heyday of downtown shopping districts occurred before the art of modern retailing was invented, so the best hope of revitalizing downtowns is to learn from what shopping centers have been doing for the last 40 years. Retail is now more than just products and services, it is a multi-dimensional experience; it is a quality of life issue.
The following suggestions, for changes to downtown Galveston, are based on what I learned doing research on the work that Robert Gibbs did in other cities, and from other sources, for my 21 February 2008 article. Hopefully, the City of Galveston will retain Gibbs to do a complete study, in the near future, but until that day, my simple efforts will have to suffice.
Some cities are blessed with a premiere street that defines their shopping and entertainment district. In Chicago, it's Michigan Avenue (The Magnificent Mile); in Beverly Hills, it's Rodeo Drive; in Palm Beach, it's Worth Avenue; in Charleston, it's King Street; and in Galveston, it's The Strand.
In each of these cities, it is the custom of many of the residents and visitors to refer to the district by the name of the marquee street that defines the area. They say, "Let's go to King Street", when they really mean the entire area around King Street itself.
Businesses derive a great deal of benefit from the cache of being associated with the marquee street, whether they are located on it or not.
Why should Galveston settle for a generic and mundane designation for its downtown area by calling it "Downtown Galveston" or "Historic Downtown Galveston" when it has a marquee street name that has been well-known for over 150 years? Using the name “The Strand”, “The Strand District”, or preferably “The Strand Historic District” (SHD) to refer to the entire downtown area is an obvious marketing advantage.
Management District (MD):
“MDs are districts in central cities defined by state and local legislation in which, “the private sector delivers services for revitalization beyond what the local government can reasonably be expected to provide.” The properties and/or businesses within this legally constituted district pay a special tax or assessment to cover the cost of providing facilities or services for which the district has a particular need. The city provides some oversight authority, BUT the MDs control the purse strings.”
Management Districts bring the art of modern retailing and centralized management, learned and employed in successful shopping centers, to downtown and neighborhood shopping districts.
There is very little likelihood that the changes necessary to make the Strand Historic District (SHD) consistently profitable can ever be implemented without this structure to manage the process. Over 1200 cities have chosen to use a Management District to manage their shopping and entertainment districts.
The typical independent store in most downtown shopping areas has sales of $80 per square foot per year. This same store in many shopping centers can achieve sales of $275 per square foot per year. This difference in performance can potentially be closed using a Management District.
The first step, BEFORE any commitment of taxpayer’s money should be made, for a “downtown revitalization plan”; is to form a Management District. It is understandable if many retailers, restaurant and bar owners, and building owners are reluctant to take on a new self-assessment, especially in this economy; but can taxpayer’s money be a wise investment in this district without one? The business owners need to convene and make a decision on this issue.
The Strand Historic District needs a significant marketing budget, and a coordinated effort to be successful. Funding must come from parking revenues and a portion of the Management District’s self-assessment. This would allow the MD to assume the role currently played by the Park Board, and make sure that marketing was done in such a way so as to achieve success.
The SHD is blessed with one of the largest collections of cast-iron buildings in the country. The Galveston Historical Foundation lists 33 buildings with cast iron in their structures. Many are the premiere buildings in the District. Much of the cast-iron was severely damaged during the flooding caused by Hurricane Ike, and could fail in the near future. Does it make sense to invest taxpayer’s money in the SHD, before this problem is addressed? If some of these trophy buildings begin to fail, it could severely undermine public investment made elsewhere in the District.
How many shopping centers expect customers if they don’t supply public restrooms? Restaurants and Bars in the Strand Historic District must have restrooms for their customers, but retailers are expected to do business without restrooms in public common areas like a shopping center. This is not working! There are daily horror stories about the frustration and anger that this generates in retail customers, and it is very difficult on restaurant and bar owners, too, as retail customers try to force their way into restrooms in their businesses.
The fact that Ewert and Company did not address the public restroom problem in its presentations or its PowerPoint that is posted online is very troubling! The merchants are far more interested in solving this problem before any money is spent on creating green space. If Ewert and Company is to continue to be involved in this project, they need to change their priorities!
Potential customers often perceive downtowns as being unsafe. This is especially true at night. To combat this, they need to be very clean. A grimy look is a sign of disorder that suggests a lack of safety. The premiere shopping districts clean their streets, and power wash their sidewalks every morning! This may be impractical in Galveston, but once a week would sure help.
Well-kept building fronts, manicured and healthy landscaping, lack of litter, and clean streets and sidewalks signal to shoppers that there is high-quality merchandise for sale in the district. Poor conditions indicate just the opposite!
Such activities as panhandling, vagrancy, loitering, and skateboarding also are signs of chaos, and danger. Downtowns need to eliminate these problems, and provide a constant visible police and/or security presence.
Lighting is also very important. Many downtowns must forgo their Victorian lighting schemes in favor of modern lights to bring the shoppers back. Street lights must be bright enough for customers to feel safe and building fašade and landscape lighting adds to the appeal of the night time experience. Retailers also need to keep their widow displays lit at night, after they close. It is good advertising, and further enhances the "energy" on the streets and sidewalks, and interest in the storefronts.
Better lighting, and a police/security presence also drive the restaurant and night club business to whole new levels.
There has been no mention of these issues by Ewert and Company, so far.
The right parking strategy is critical for downtown shopping areas to work. Most shoppers want to park close to their point of destination, and ideally they should be able to park where they can see the door to their first stop. This means that on-street parking must be rationed with parking meters, so that it is used primarily by shoppers. Modern parking meters can eliminate much of the frustration that customers have with parking fees.
The surface parking lots scattered throughout the SHD are the next best choice when they are close to the customer’s first stop. Multi-deck parking lots a few blocks away from the intended destination are good for overflow, at busy times, and for big events; but not the first choice of most customers.
The existing surface lots could be upgraded with the same types a high-tech parking stations now being used for on-street parking to make them more user-friendly. One or two pay stations per lot would be sufficient.
Ideally, parking fees should be coordinated so that on-street spaces had the highest hourly rates, for the convenience of their location, well-positioned surface lots the next highest hourly rate, and inconvenient multi-deck lots the lowest rates; even free of charge at many times.
The Ewert and Company plan to convert many surface lots to green space would run contrary to this parking strategy and potentially undermine economic activity!
The major national chains want to know that if they invest a lot of money in their store, all the other stores, in the district, will meet the minimum standards. They want uniformity, and predictability in store fronts, modern signage, lighting, and building design, and look for cities that will enforce those standards.
Store fronts need to be at least 70% clear glass.
Will the City of Galveston do what needs to be done to clean up such eyesores as the DeMack Building, the Colonel Moody Building, the Martini Theater, and other buildings in the District? Will a Management District be able to do so? Will the Management District be able to prevail on the GHF to allow more modern signage and lighting in businesses, including neon?
If these changes are not possible, can the SHD become reliably profitable?
Chain Stores Versus Independents:
Typically downtowns will not succeed without at least 40-60% chain stores. Many cities are biased against chain stores, but most are now willing to adapt their designs to historical buildings, and cities should not set artificial limits on store sizes.
Independents can only substitute for chains if they offer the merchandise, service, and pricing of the chains, or if they have unique concepts, and merchandise. All stores should have signs that show the brand names that they sell.
Chain store retailers don't worry much about the quality of the local workforce.
Recruiting retailers is now a full time job. The recruiter who works for the new Management District, will be in charge of retail attraction and growth, and will have to push City departments and utility companies to expedite permits and hookups, and facilitate relationships between retailers, developers, and landlords. Chains will skip any city where the permitting process is too long and complicated.
Is it even possible to recruit national chains with the current City Planning Department? Without a totally revamped planning process, can the SHD become reliably profitable?
A downtown area needs a good web site. For many potential retailers, this is the first thing they see when they consider a city.
To achieve the ideal retail mix, research must be done by analyzing the detailed spending patterns of potential customers to determine what kinds of retail can be supported.
After the research is completed, downtown shopping areas need to have a strategy to achieve the best mix of stores. Ideally, at least one anchor store can be recruited. In a shopping center, an anchor usually gets lower rent than most other stores, because it will do a lot of advertising and run promotions that will drive traffic to the mall. The SHD probably needs one or two anchors on the Strand, and maybe one more on Postoffice.
A downtown area must have at least 200,000 square feet of retail space, as well as the right mix of shops, to become a "destination"; a place people are willing to travel to for shopping.
Locals Versus Tourists:
Most downtowns are successful because they bring back stores where the locals will shop on a day-to-day basis. Even low-income towns have done well by offering things like the type of clothes and shoes that residents want, at reasonable prices. Downtown residents also need places like grocery stores, and dry cleaners, but these stores must be able to co-exist with shops that sell $200 shoes that appeal to high-end customers.
The worst mix will feature T-shirt shops, and stores that sell things like scented candles, and kites. The locals don't buy this stuff, and only a few tourists will.
70-75% of all sales are now made after 5:30 pm, and on Sundays. Downtown shops MUST keep these hours if they are going to succeed. This puts independents at a big disadvantage, because most don't want to hire the managers, and enough employees to do this. More than half of all chain stores are open evenings, Saturdays and Sundays.
New lighting will be critical to the success of evening shopping hours.
Shopping centers often create small low-rent spaces called "incubators" that allow local entrepreneurs to test drive new ideas in retailing. Downtowns need to do the same thing. Start-ups that are successful move to larger full-priced spaces.
The term "pop-up" refers to the short-term duration of the stores, which "pop up" one day and are gone the next. Halloween costume stores are a common example, as are fireworks stores. Pop-up stores are also beneficial to retailers; in a down market, sellers can take advantage of lower rents and shorter leases if they are looking to generate sales but have a limited amount of inventory.
Empty spaces in the SHD cry out for incubators and pop-up stores.
The City Planning Department, GHF, and the Landmark Commision must make it much easier to set up outdoor dining, and relax the rules on what kinds of tables and chairs can be used.
Live Music and Entertainment:
The City must create a reasonable noise ordinance that does not stifle entertainment in the District which is critical to its success.
The SHD needs much better signage on I-45, Broadway, Seawall, Harborside, and 61st Street. It is not clear whether this is part of the Ewert and Company plan; but it needs to be.
This is currently a missing element in the SHD. Wayfinding is part of the Ewert and Company plan!!
Many special events are currently held in the SHD: The Battle of Galveston, Mardi Gras, Lonestar Rally, Dickens on the Strand. Some are good for restaurants and bars but not retail. Smaller and more frequent events, like the Market on the Strand, need to be held that are targeted at boosting retail sales.
Independent stores renting space in a successful mall get the benefits of the latest knowledge, trends, and expertise on retailing from the mall owner. The same store, in a downtown area, gets virtually no help at all, so they are at a big disadvantage, if they don't learn these things on their own.
In the late 1950's, and early 1960's, traffic engineers believed that it was their job to reroute traffic away from downtown shopping districts. At the time, business owners agreed, because they felt overwhelmed by the increase in traffic volume which seemed to create a "busy atmosphere" that drove away shoppers. The decision to try to get rid of cars was what initially killed downtown areas.
The latest data shows how wrong they were! These studies indicate that traffic must flow to and through downtown areas to facilitate shopping. Ideally, 25,000 cars per day should drive past shops to give them maximum exposure. Now the goal is to get more cars into downtown areas!
The Strand Historic District is the crown jewel of this city, but it currently finds itself in a very difficult position. "Modern retailing" concepts should have been implemented years ago, so what ever is done now will be playing catch up to those who have already been doing these things.
The only conceivable way to do this is for downtown business interests to take control of the situation by forming a Management District, but is there a consensus within the downtown business community to do so?
Business and property owners need to call for a "convention" to create a Management District. This convention should hire an expert who can present a number of examples from the 1200 MDs, in the U.S., showing their before, and after results.
Can the owners share a common vision and resolve their differences on issues such as the number of bars and clubs allowed in the District, and create a reasonable noise ordinance that encourages entertainment?
Are they willing to assess themselves to make this work?
Can they find the right manager to create a successful shopping and entertainment district?
Can they work with the GHF to loosen signage rules and upgrade lighting standards to drive more customer traffic, for enhanced security, and to liven things up?
Can they work with the City of Galveston Planning Department to develop an efficient permitting process, and to make it much easier to set up such things as outdoor dining, and relax the rules on the types of tables and chairs that are allowed to be used?
Can they work with Ewert and Company to modify their downtown plan to include the changes described above?
Without affirmative answers to these basic questions it is NOT very likely that the expenditure of $72.4 million on the changes described in the current version of the downtown plan (see table below) will create a consistently profitable shopping and entertainment district. In fact, some of the changes like removing several surface parking lots could actually degrade sales and profits.
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