COVER STORY, MARCH 2010

MOM-AND-POPULAR
Mom-and-pop retailers are gaining momentum and staying in the game during the economic downturn.
Howard Paster

The recent economic downturn has challenged the notion that bigger is always better when it comes to retail, and has sparked a renewed appreciation for the strength and resilience of local mom-and-pop tenants. While industry observers are beginning to see some stabilization in tenant sales numbers, the hardship faced by many national retailers has trickled down to individual centers that have, in many cases, struggled to retain existing tenants while coping with a difficult leasing landscape.

One of the ways that some developers have responded to a more conservative consumer spending environment is a general move away from larger mega-projects, with national tenants, toward the community center format, where local and mom-and-pop tenants figure more prominently into the leasing equation. Owners and developers that have traditionally owned, developed and managed small-to-mid-sized community centers and leased to local and regional tenants have suffered less than the high-profile developments with big national chains. The industry as a whole is sitting up and taking notice. The increased relevance of these smaller local and independent retailers is directly related to their durability, flexibility and price points. In contrast with a national retailer model, where poorly performing locations are subject to a bottom-line financial analysis and closure in an economic slowdown, mom-and-pop tenants are more personally and emotionally invested in keeping their doors open. The loyalty, flexibility, tenacity and willingness to engage in hands-on management techniques that focus on doing what it takes to survive and thrive even in the most dire economic circumstances has garnered attention from owners and developers alike. If you go far enough back in time, almost all of the biggest names in the industry, from Macy’s to Nordstrom’s, started as family-owned small businesses. Mom-and-pop retail power is once again figuring prominently in leasing discussions and on blueprints across the industry.

As it has become more and more clear that community centers, neighborhood centers and smaller retail grocery-anchored developments have not been hit as hard in the recent economic downturn, a subtle shift in mindset among owners and developers is apparent. There has been a respectable influx of new mom-and-pop type businesses and start-ups, and leasing activity has remained in play for these formats. There is a renewed industry-wide appreciation for the fact that historically, above and beyond economic considerations, the barbershops, small diners and cafes, and other retail tenants that are locally owned and run add tremendous value and character to a project and a community. In a challenging economy, these tenants are also less susceptible to many outside pressures, particularly those that are often exerted upon national chains, where store closures, cutbacks and rent renegotiations can present an unavoidable obstacle for tenants and landlords alike.

Hands-on owners and developers who are able to identify and attract solid local tenants are also finding that there are tremendous benefits that stem from the ability to develop lasting tenant relationships. A close relationship is even more critical during a recession. Open and honest communication about where a tenant stands, where they are going and how a property management company can help them to achieve those goals can yield productive results for both parties. Owners and developers are finding that the productive long-term relationships they have built throughout the years with their mom-and-pop tenants become even more critical during an economic downturn.

Developers and tenants are increasingly working together, arriving at mutually beneficial solutions to endure the tough times. Coordinating energy, effort and enthusiasm to develop new marketing initiatives and drive traffic can make a very real difference in the bottom line. The ability to offer additional marketing assistance is a great way to work with tenants to boost sales and can also have a positive long-term impact on tenant loyalty. This kind of collaborative engagement is often impossible with larger tenants and national chains. While in recent years very few developers have spent the time, money, energy and resources to engage in the kind of grass-roots marketing that can make such a notable difference, the resilience of the format and the effectiveness of the strategy in the face of current economic hardships has prompted a renewed appreciation for this approach.

While mom-and-pop tenants may be considered old school, today they are ahead of the curve; setting the industry standard for innovative tenant-landlord collaboration and retail flexibility. The trend away from local and family-owned tenants in favor of national mega-retailers may not have been entirely reversed, but a more balanced dynamic has emerged. Community centers and grocery-anchored developments populated by larger numbers of smaller tenants have become more structured and formalized; mom-and-pop does not mean unprofessional or inefficient. Owners and developers across the country have realized that one size does certainly not fit all, and whenever new leasing slows, it is important to take a closer look at management, leasing and approval processes. It is only in the toughest of times that tenant relationships and intimate working retail knowledge becomes most essential. For owners and developers looking to make the most out of their portfolio and avoid unnecessary closures and rent reductions, the smaller scale and local and regional appeal of mom-and-pop tenants can be exactly the right fit. As the market picks up, national tenants will become attractive again, but mom-and-pop tenants will always have value. A vibrant and resilient tenant mix should be exactly that—a mix. Ignoring mom-and-pop is not good business, and small-scale retail will always have an important place at the table.

Howard Paster is president of St. Paul, Minnesota-based Paster Enterprises, a family owned company specializing in shopping center management and development throughout the Twin Cities.

©2010 France Publications, Inc. Duplication or reproduction of this article not permitted without authorization from France Publications, Inc. For information on reprints of this article contact Barbara Sherer at (630) 554-6054.