Vibrant Town Centers: Developing Small-scale, Locally-owned, Downtown Department Stores that Serve the Community

The Challenge: Providing basic goods at affordable prices for the entire community

In June this year a small group of people gathered at the Grand Isle Lake House* for two days to think about the challenge of downtown retailing in the next millennium, and to consider a strategy for developing downtown and community center stores which would be designed to provide basic goods and services at prices affordable to the entire community.

We gathered to test a concept and answer this question...is it possible to mix ingredients such as entrepreneurship, investors with charitable spirit, customer and community participation, and new systems of distribution to start and support a thriving locally-owned, small-scale, downtown department store? Furthermore, could a community utilize some or all of the same ingredients to support the development of general stores in small communities or even downtown grocery stores?

The group included great retailers, successful entrepreneurs and developers, community activists and organizers, and strategic thinkers. Several hours of formal and informal discussion affirmed the concept and added much in the way of details, strategies, and ideas. A summary of our thinking plus some “scenarios” that describe some ways in which this all might work follows.

Generous funding from Walter Cerf made this initiative possible, and we hope it will encourage communities around Vermont to explore how they might stimulate new retailing opportunities in their town centers and downtowns.

Paul Bruhn

Executive Director

Preservation Trust of Vermont

August 3, 1999

*Built at the turn of the century as the Island Villa, the former hotel was later run as a summer camp for girls by the Sisters of Mercy. “Marycrest” was given to the Preservation Trust of Vermont in 1997 by Bob and Cindy Hoehl, and the Preservation Trust is continuing to raise funds for the rehabilitation of the property. Today the Grand Isle Lake House is used for weddings and family gatherings, and as a center for business and community learning and thinking. Good thinking often happens at great places.


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Today’s Context: Fragile centers and incremental loss

We believe that the best downtowns are ones that serve a wide range of purposes: community gathering places, successful businesses and employment opportunities, shopping that meets a range of needs, groceries and specialty foods, entertainment, restaurants, government services and offices, libraries and museums, a post office, banking services, performing and visual arts, religious opportunities, and housing. The more of these services and functions, the better.

If we lose these town centers, we also risk losing the sense of community most Vermonters cherish. If we’re going to maintain Vermont’s working landscape and countryside, we need vital and vibrant community centers where economic development and smart growth can happen. Community centers are part of the reason why Vermont is a great collection of special places...physical places and social places...special places for residents and visitors alike.

Since the 50’s when shopping centers began another wave of change in how retailing in America works, traditional downtowns in Vermont and across the nation have faced an incredibly difficult challenge. Retailers on our side of the Connecticut River must contend with the lack of a sales tax in New Hampshire, many downtowns have perceived or real parking problems, and there’s been a steady loss of the retail entrepreneurial tradition that was passed down through the generations. There has been an erosion of critical mass in downtowns, as development has moved out of town. The advent of big box retailers like Wal-Mart and Home Depot has only made the task of maintaining strong centers and revitalizing Main Streets even more daunting.

Currently, Vermont’s community centers...village and town centers, and our larger downtowns ...are very fragile. Too many communities are witnessing incremental losses that ultimately result in undermining their strength and vitality.

  • The Post Office closes or moves out of town.
  • The village store or grocery loses business and begins a downward spiral until it closes.
  • Truck traffic undermines community revitalization efforts.
  • The local school is encouraged to build a new complex in a big field outside of town.
  • A bank leaves town.
  • The local department store where everybody could purchase most everything they needed, closes.
  • The local hardware store finds it impossible to compete with the “big box” ten miles away.

Fortunately, there are dozens of examples of community groups, businesses, nonprofit organizations, and local and state governments working on special revitalization initiatives in communities throughout the state. The National Main Street Center at the National Trust for Historic Preservation along with its partners has helped hundreds of downtowns all across the nation come back to life. In Vermont, the Vermont Downtown Program and other agencies of state government, the Vermont Forum on Sprawl, community groups, and the Preservation Trust of Vermont continue to look for the right mix of activities, services, and investments to make town centers and downtowns vibrant places. It’s not always an easy task, and most often the nature of downtown changes. Faced with the competition of strip centers, shopping malls, and big boxes, the new downtowns have focused on providing entertainment, the arts, restaurants, specialty shopping, employment opportunities, housing, and services of all kinds. This new mix of activities can make a successful downtown, but there may be a missing piece.

Often the major gap is the absence of the traditional, locally-owned, downtown department store where the community could purchase basic, everyday goods...underwear, clothing for the entire family including kids, shoes and sneakers, household goods, stationary supplies, and everyday hardware needs.

Charitable Capital and Community Investment

Vermonters have a history of being very generous to community projects throughout the state...there are hundreds of examples. These are a few community initiatives that have been treated generously by donors:

  • Community theaters and opera houses like those in Enosberg and Derby Line,
  • Early Vermont historic sites like the Rockingham Meeting House and Richmond’s Round Church,
  • Community meeting places like the Plainfield Town Hall and Starksboro Meeting House,
  • Arts spaces like the Vermont Arts Exchange in North Bennington, the Helen Day Art Center in Stowe, and the Brattleboro Museum and Art Center,
  • Historic churches like the East Poultney Baptist Church and Old South Church in Windsor,
  • Famous historic properties like Hildene in Manchester and Shelburne Farms,
  • Museums like the Fairbanks Museum in St. Johnsbury and the Lake Champlain Maritime Museum in Ferrisburg, and
  • Libraries like the Kimball in Randolph and the Aldrich in Barre.

Given the opportunity, there’s a good chance Vermonters will be willing to invest in other critical community needs, even those that mix community service and the profit motive. In fact, there are already examples in Vermont and elsewhere in the world where charitable capital has been used to support efforts like the proposed downtown department stores. Here are a few examples:

  • A charitable investor has made it possible for a community restaurant to start up in South Strafford. It’s become a place for residents to meet and enjoy great food.
  • In 1936, Upper Valley residents formed the member-owned Hanover Coop, and today the Coop is a major supermarket in the region. This year their two stores will produce close to $40 million in sales.
  • On a smaller scale, United Kingdom residents in several communities have joined together to invest in village shops that provide basic goods and services in their communities.
  • In St. Albans, Jeff’s Maine Seafood used a “reverse credit” plan to eliminate debt. Ten customers paid $1,000 credit to the market, and over time the customers were able to make $1,100 in purchases at the store.
  • In Vergennes a group of residents formed the Otter Creek Investment Company, acquired and rehabilitated a downtown historic building, and are providing a short-term subsidy to assist a group start a local coop grocery store.
  • The Vermont Community Loan Fund has attracted charitable investment capital from individuals, institutions, and nonprofit organizations. In turn the funds are loaned at flexible rates and terms to start up local enterprise and support affordable housing projects.

In all these cases, and many others, investors have been willing to accept a low or even zero rate of return on their capital so that they could help good things happen in their community. This same charitable spirit could be captured to support the development of new, locally-owned, small-scale, downtown department stores as well as village stores, downtown grocery stores, or whatever gap needs to be filled to meet community needs.

This charitable investment could be used to cover all or a large portion of space rental, and it could be used to finance inventory acquisition and working capital at a low or zero rate of interest. These kinds of investments clearly have the potential of helping to make locally-owned, downtown department stores viable once again.

Rallying the Community and Building Loyalty

Even with the general popularity of “big box” retailing and the success of the national chains, we are at a time when the recognition of the value of downtowns and community

centers is increasing. It is therefore possible that a broad range of community residents will recommit to doing some or all of their shopping in downtown. The right collection of products and pricing is critical as are service and providing a “great” shopping experience.

The Vermont Country Store has a series of principles for serving its customers and these principles constantly challenge management and staff to provide an excellent shopping experience for their customers. Here is the Country Store’s Customers’ Bill of Rights:

  1. To expect polite and courteous service.
  2. To be the top priority of the moment.
  3. To expect all sales people to know about their merchandise.
  4. To complain about any shortcomings in the merchandise, service, or
  5. delivery.
  6. To compliment superior quality of service and merchandise.
  7. To expect The Vermont Country Store to stand behind its merchandise.
  8. To expect any adjustments in merchandise to be made in the most
  9. convenient manner.
  10. To expect accurate and efficient record keeping, despite the computer or
  11. any other problems.
  12. To expect 100% guaranteed satisfaction or we will exchange any item you return or promptly refund your money, without any hassle or fuss.

Our “Smart-marts” should have their own set of principles, and they should be developed in partnership with the community. If we’re hoping the community will invest in Smart-Mart, then the community has a right to expect some things in return.

While we believe these principles should be developed on a community-by-community basis, perhaps at the same time the community is identifying its community needs, there are some that should be common to all. Here are a few:

  • The store should constantly re-assess community needs and change to meet those needs.
  • Open hours should meet the needs of the community.
  • There should be a guarantee of easy, no questions asked, returns.
  • Smart-Mart should try to meet the price needs of its community. Dada, a shop in Middlebury, tries to have three price points for each item in the store.
  • In general, shopping is entertainment and shopping at Smart-Mart should be a great experience.

One of the crucial strategies in making successful Smart-Marts is providing tangible ways for residents to participate in the development and support of the new store. Developing principles or “Customers’ Bill of Rights” is a process which will give the community a real role in the development of a Smart-Mart. Rallying this support and building loyalty can happen in a variety of other ways. Here are some examples:

  • Price clubs like Sam’s and Costco use an annual membership fee as a way to encourage customers to shop their box first. There’s no reason why small retailers can’t do the same thing. Some small retailers have established a basic $25 membership and provide a 10 or 15% discount on all regularly priced merchandise.
  • The Hanover Coop and REI, an outdoor equipment retailer, have patronage refunds at the end of the year. If you’re a member of REI, you’ll receive REI dollars based upon the total of your purchases during the year. Hanover Coop also has 20,000 members who share in the governance of the company.
  • Giving residents a way to invest in the real estate acquisition is one possibility and has been in many communities in England to support village shops. A “reverse credit” plan is another option.
  • In Middlebury, the Business Bureau and participating merchants have developed “Middlebury Dollars” in cooperation with the Middlebury National Bank. They are used for gift certificates and employee rewards, and it’s been a big success which shows, in part, that their community has a real commitment to their downtown.

While all or a mix of the above strategies will give residents opportunities to have a stake in the Smart-Mart, ultimately it has to be a great store. Convenience, excellent service, employee training, everyday goods at fair prices, and an entertaining experience are all part of the equation. There is no school for retailers, and an entrepreneurial spirit is critical to making successful retail stores. One idea the group developed on this subject was the need to establish a mentoring network and other opportunities for retailers to share trials and tribulations. In fact, part of the Smart-Mart Retreat proved to be just such opportunity, and a terrific learning experience for the entire group. Another option is for retailers and downtown managers to visit other great stores in Vermont and elsewhere, and to identify the “five things that make that store work.”

Product Mix, Availability, and Price

A key strategy defined by the group was that the first step in developing a store should be to identify the product gaps which exist in the community. The identification process itself will be helpful in building community support. Possibilities include men’s and women’s clothing, children’s clothing, shoes, household and kitchen goods, pharmacy services and goods, stationary supplies, small electric appliances, and hardware. Depending upon the community, other product needs might emerge. The key is to evaluate a specific community’s needs. One town, for example, might already have a great hardware store, so there would be no need to duplicate those services.

Product availability is also a challenge for small retailers. Cooperative buying clubs such as ACE Hardware are one solution. In addition, there are regional and national buying groups that can help solve availability and price issues. The group also agreed that there are existing successful Vermont retailers who would be delighted to be the supply route to non-competing community stores. (The retailers present at our discussions expressed their interest in exploring ways to assist others. Please see list of participants in the Appendix.) These retailers are committed to local ownership and maintaining healthy downtowns in Vermont.

A major issue all small retailers face is the cost of goods. The big guys will always have a significant advantage over independent retailers. This advantage can be as much as 5-10% no matter how aggressive the small retailer is. The cooperative buying approach mentioned above is one strategy that could help lower product costs. Another solution is the “closeout goods” market. There, retailers can buy merchandise at 40 to 50% off the original wholesale price. A mix of these goods with fair prices on regular merchandise can make the overall shopping experience competitive with other stores.

Scenarios

With all of the above as background, a few ways in which the ingredients might be combined for good result are described below. The scenarios are intended to be examples of the range of possibilities.

#1 In one community, there is a 10,000 foot downtown storefront available to purchase for $100,000.

A local nonprofit historic preservation organization could find one or more charitable investors to help it acquire the building. This major investment might be matched by smaller investments and contributions from a wide range of community members. The investors would receive zero rate of return for three years, at which time the principal would begin to be paid off. At the same time the purchase process is moving ahead, community leaders would be recruiting potential owners/operators of the store. Possibilities include sharp retailers who are running other retail operations in the community, retailers who have operations in other communities, young entrepreneurs looking for business opportunities that require minimal capital, or a group of citizens who wish to establish the store as a Coop. The space would be rented to the store operator for the first three years for operating expenses only (insurance, property taxes, utilities, etc.) Once sales reach a certain target, the retailer will also pay a percentage of its gross sales as additional rent.

Notes:

a. The first step in this process should be a community-based process to understand what needs exist in the community, and concurrently the community should be developing its “Principles” for the store.

b. This scenario is not likely to produce a rate of return to the charitable investors, but their investment would be relatively secure since the property itself could be used as security.

c. A major advantage of this approach is the real estate part of the business is separated from the retail operation. It is enough of a challenge for a retailer to devise a business plan and run the business without adding the stress of becoming a developer too. From the community’s standpoint, community ownership of the building will remain even if the operator is unsuccessful...that will give the community the opportunity to try again with another approach if they choose.

d. This scenario would work with an entrepreneur as the store owner or as a membership Cooperative. The entrepreneur could use borrowed funds for the inventory and fixtures, and perhaps reduce his or her debt with a “reverse credit” plan after some period of operation. To build a customer base, the entrepreneur could actively market memberships to customers and they, in turn, would receive a 10% discount. In the Coop model, membership revenue would be used as the basis of the store’s working capital.

e. No matter how the ownership is structured, a key strategy will be to develop a supply network by working with community-minded retailers from around the state. This will allow the start-up to get the best prices possible even as a small retailer.

#2 Another community has recently lost its locally-owned, downtown department store, and it has left a major hole in downtown’s offerings.

There’s an active downtown business group as well as some cooperative property owners and a couple of great retailers whose stores serve other needs in the community. The business group decides that the absence of the downtown department store will eventually undermine its vitality and moves ahead with the community needs and principles discussion. Lots of community members rally, and it becomes clear that there is significant support for starting up a new store. A landlord agrees to provide a bargain rate rent if sufficient charitable investment is found to pay it. Fifty residents agree to investment of $2,000 each, another fifty offer to invest $1,000 each, two major donors invest $50,000 each, and a statewide investor offers $50,000. The total pool of $300,000 is carefully invested and income will be used to cover the rental cost. With the prospect of bargain rent for a period of time, one of the community’s great retailers comes forward with a plan to establish the new department store that meets the community’s product needs and principles of operation. The inventory is financed by traditional methods, and the retailer agrees to pay a percentage rent when sales reach a certain amount.

Notes:

a. The retailer could establish a membership/discount program, or he or she could do a patronage refund program based upon the success of the store.

b. The investors’ money should be secure with only the income being used to pay the reduced rental fee.

c. If sales reach a sufficiently high number, then the percentage rent could actually cover all or a large portion of the rent. In this case the investors could choose to get their money back, or perhaps another new community investment could be made.

#3 A non-profit housing developer is exploring the potential of rehabilitating the upper floors of a Commercial Block but doesn’t have any big ideas for the ground space.

A second local organization, an economic development group, begins a discussion about the potential of acquiring the first floor space at a very favorable cost. The economic development group successfully raises all the funds necessary to purchase the first floor and announces that it is available to meet community retail needs. The community develops a list of product needs and principles of operation and advertises for a retailer/entrepreneur who will start up the store in accordance with the community needs and principles. One of the principles established in the planning process is the interest in having a membership and discount program. The economic development group spearheads the membership campaign, and the proceeds are used by selected retailer to do the interior improvements. A key benefit to the potential retailer is low occupancy costs with a percentage rental charge that kicks in only when sales reach a certain amount.

#4 This scenario involves the development of a village store in a small community.

Three years ago, the village lost its only general store, and community life has suffered as a result. There’s no longer a central gathering place where residents can meet casually. The community has attempted to attract a new storekeeper, but nothing has worked. Even the offer of free rent hasn’t worked. The property comes on the market, and a batch of residents decide that the community should try to acquire the property to keep open the possibility of starting up a new store. Their acquisition effort is successful because the generosity of a number of community residents as well as support from outside sources. After a discussion with the regional Coop, there seems to be a possible solution if the community is willing to accept the major risk. In addition to acquiring the property, the community needs to sell a sufficient number of memberships to provide working capital for the shop. With strong community support, the Coop is willing to establish a Community Market...a small grocery stocked with goods similar to what’s stocked in their main store. Prices at the branch will be the same as the main store.

Notes:

a. The Coop model might just be a great solution for staffing and managing village stores in small communities in Vermont as well as Smart-Marts in larger communities.

b. Many of the ideas and strategies for Smart Marts could be adapted to help develop village stores in small communities, and perhaps a larger supermarket in downtown Burlington. Charitable investment and reverse credit have both helped village shops in the UK.

Next Steps

We think the concepts and strategies outlined above have great potential and promise. We’re hopeful that a number of communities will develop prototypes to “field test” the program. Some local leaders have already begun discussions and are beginning to figure out how to make a Smart-Mart happen in their community.

As part of our continuing effort to help strengthen Vermont downtowns and community centers, the Preservation Trust wants to help. If you have questions, or would like to explore the possibilities, please let us know.

Appendix: Participants

Bob Allen, Vermont Country Store and Preservation Trust Board Member

Deb Anderson, dada, a shop in Middlebury

Michelle Bessette, As the Crow Flies, a shop in St. Albans

Frank Bouchette, Pier I in Burlington

Paul Bruhn, Preservation Trust of Vermont

Ann Cousins, Field Service Representative/ National Trust and Preservation Trust
Gail Freidin, Middlebury Business Bureau

Allen Gartner, Mintzer Brothers, Rutland and PTV Board Member

Phil Gerbode, downtown St. Albans property owner

Jeff Glassberg, Otter Creek Investment Company, consultant, Vergennes

Bob Hoehl, co-founder IDX and Preservation Trust Board Member

Jill Michaels, Windsor Economic Development Consultant

Lyman Orton, Vermont Country Store

John Rehlen, Castleton and Benson Village Stores, and PTV Board Member

Wenger Rehlen, Castleton and Benson Village Stores

Pat Robins, Symquest

Kennedy Smith, National Main Street Center, National Trust for Historic Preservation