ICSC Commerce + Communities Today
by Paul Bergeron
March 22, 2023
For national retailers that have saturated urban areas or that struggle to find available space to lease, rural areas provide runway to new consumers. “The economics are often better on real estate in rural areas,” said Lisa Christianson, president and owner of Christianson & Company Commercial Real Estate Services/CORFAC International in Minneapolis.
“There are clear opportunities to provide goods and services to underserved populations, as well as to consolidate market share in areas often overlooked by many retail operators,” said Greensfelder Commercial Real Estate managing principal David Greensfelder. “Furthermore, being first to market in a rural area can create a de facto barrier to entry to competitors, meaning that downside risk from future competitors can be less than might be expected in more populous areas. From an operational perspective, grosses can be more robust in exurban than in more competitive markets and operating economics can also be more favorable.”
On the downside, distribution and staffing can be more challenging, and re-leasing in the case of a store closure is harder, as fewer operators are waiting to backfill space in rural markets. Christianson also said today’s high construction and debt costs make new-construction options unattainable for many retail categories.
Ultimately, “retailers must weigh access to outstate areas to compete with the likes of Amazon with the challenging demographics of less densely populated areas,” she said.
Demographics and a Community’s Real Story
“Rural areas don’t always have the access to data that a larger city might have,” said broker Justin DiBiase, vice president for Western Retail Advisors. “That makes it challenging to show a retailer why they should be there. In the same vein, outdated demographics, traffic counts or gross receipts tax information could deter potential retailers from wanting to invest in the community.”
Basic demographic data might indicate 40,000 residents in a particular area, in which case Walmart, for example, likely wouldn’t categorize it as a top pick for development. But if Walmart conducted its own analysis, it might find an additional 150,000 residents from surrounding areas that rely on the community for services, upping the location’s appeal. DiBiase said data from providers like Placer.ai, Locate.ai and Esri can help put a community in context. “A clear vision of a community’s story goes a long way toward attracting retailers.”
Coreland Cos. vice president of real estate management Tanya Keshishian said such an understanding of the physical real estate — including its location, customers, surrounding community and traffic patterns — aids her asset management work, as well. She recommended drone photography when not able to visit a location often. It can provide a detailed and nearly live reference point when sitting down with owners, asset managers or property managers to review issues or potential improvements that would appeal to tenants, Keshishian said.
Rural areas often lack competition from multiple retailers, and thus tenant retention and leasing can be harder, she added. “In these situations, community involvement becomes key” for landlords, she said. “Getting to know the chamber of commerce is a priority. Integrating a weekly farmers market, outdoor playgrounds or live music alongside a robust marketing campaign that reaches a wider audience increases visibility and builds relationships with customers who might have to travel farther.
Retail Strategies, which helps recruit retail to cities and towns, offered three California towns that go beyond the basic demographics to tell their stories to retailers.
Alan Flora, city manager for Northern California’s Clearlake — population just over 17,000 — said it’s been important for retail decisionmakers to have face-to-face time with him. He told Retail Strategies: “When the city manager is a part of the process, it shows buy-in from the community, and the personal involvement can give a visiting retailer the confidence that the city is willing to show up and help make a deal happen in the community.”
Mallory Crecelius, city manager of Blythe, California — population of 18,300 — hears a lot of feedback from retailers that the town “just doesn’t have the population” to support a new store. Blythe sits along Interstate 10 near the Arizona border, so “instead of focusing [on a] lack of consumers as a challenge, we focus on the fact that we have an interstate running right through our community,” she said.
Similarly, Fortuna, a town of 12,500, focuses on vehicles per day rather than residents. It can demonstrate that there were untapped consumers willing to exit the interstate to fill their tank or have a quick bite to eat when visiting this northwest corner of the state.
As DiBiase stated: “Every major city was once a rural area that grew based on the information it had available to tell their story.”