Student Corner: Retail Incubators and Main Street Revitalization: Part II

Community and Economic Development – Blog by UNC School of Government

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Student Corner: Retail Incubators and Main Street Revitalization: Part II

By CED Program Interns & Students

Published October 4, 2016

In Part I of this post, the CED blog introduced retail incubators and a program-based model that provides financial, educational and networking support for retail start-ups transitioning to brick-and-mortar stores. In Part II, CED examines the space-based model.

Space-based retail incubators allow retailers to occupy shared, tiny or temporary stores in locations that would have either been too risky or financially prohibitive for a retail start-up.  Rents are not usually artificially supported, but costs to the retailer are minimized as a function of the size of the space, through shared costs or the type of lease. Unlike with the program-based model, the burden of establishing the incubator does not usually fall on the public sector. As discussed in Part I, property owners have an interest in bringing in and sustaining new retail tenants, and the emergence of space-based incubators across the country highlights the creative measures that private investors are taking to fill vacant storefronts.

Let’s look at the Shops @ MoDiv, a downtown “mall of tiny spaces”  with new and established retailers in glass-enclosed mini-stores selling products such as bow ties, refurbished computers, natural remedies, art, clothing and even craft beer brownies. The retailers fill 10 spaces between 100 square feet (at $400 a month) to 1,000 square feet (at $2,000 a month), with utilities and WiFi included. The vacancy rate has stabilized at 0%.

Rockford Construction, which developed MoDiv, sought to create a “pipeline for retail.”  The hope is that an incubated business, once established in that neighborhood or retail strip, will want to stay in the area even after it outgrows its tiny space, to preserve its existing market and network. In this way, Rockford develops tenants for its other properties downtown and generates additional demand for retail space.

For some retailers, a small space may be all they’ll ever need, with a street-level presence meant to supplement an active online or wholesale business.  Or as in the case of a florist in Grand Rapids, MI, a smaller space allows a larger retailer to open an outpost in another part of the city without having to replicate the original store format (or the capital and operating costs that go with it). In these cases, the established retailers may help to sustain a market, but ultimately the goal of an incubator is to grow a business so that it can transition to a permanent location in the area.

Building tiny spaces for start-ups to occupy can also serve to transform the pedestrian experience around passive buildings. The disruption that is a parking garage in a shopping corridor, for example, can be mitigated by wrapping the deck with active uses. Still, for a real estate developer the idea of building unforgivingly small spaces that require multiple tenants can be risky, especially compared to building a traditional commercial space which can be subdivided as needed but ultimately leased off to a single entity. This is where a developer can partner with a reliable public entity, which will take on the lease and handle the work of filling the incubation spaces.  Such a partnership, which can take many forms, can maximize the leasable space on a project, minimize risk, create an active streetscape and help a small, local business get a foot in the door.

A retail incubator is also often designed as a shared retail space, with multiple small businesses sharing one larger storefront and the associated operating expenses. How is this different from a traditional flea market? Well, it can be the same. But some are hoping that a bit of flare can elevate the flea market and help tenants acquire long-term success.  Seaport Studios in Brooklyn NY was privately developed as a shared incubator that is aspirationally described as “a point of entry for young brands built on digital platforms to share and understand their identity in a physical manifestation.” Several retailers display their products in an adaptable, two-level, 5,500 square foot, high-end space.

The approach recognizes that a storefront is as much a tool for marketing the product within as it is a place to display wears. And like tech incubators, retail incubators seek to bring innovative products to the market and create an environment that fosters collaboration.  The Garage @ Clinton Row in Huntsville, Alabama describes its incubation space as a place “to highlight innovative and creative regional business…a gathering space for passionate entrepreneurs to come together, connect with the public, share their ideas, and grow their business.”

Incubators can take many forms and many names, whether temporary leases, flexible lease terms, local business joint-fundraising, or even street-level kiosks.  In any case, a retail incubator can never completely eliminate the challenges to maintaining a business. Many stores, built on the sweat and tears and assumed stability of a single business owner, will close their doors. There is no silver bullet for main street revitalization, and retail should not be the only focus. But before retail chains and super-mega-markets, it was the locally-grown business owner that built and anchored the commercial heart of a town. The retail incubator is in essence an embrace of an old model, with the goal of bringing diversity and local character back into the shopping experience, one storefront at a time.

 Sarah Odio is a Master’s candidate specializing in Economic Development in the UNC-Chapel Hill Department of City and Regional Planning. She is currently a Community Revitalization Fellow with the Development Finance Initiative.