Why reject chains?

Despite the potential economic benefits of chains, many communities have valid reasons for rejecting them.

What is a chain?

Chains provide a way for businesses to expand to new markets. (There are other ways for businesses to expandcatalogue sales, online sales, etc.) Even within the framework of operating multiple units, a business can expand via several means. Rather than expanding to new locations, some businesses imitate certain practices of chains. What most of us commonly call chain businesses or national retailers actually represent a variety of business expansion models.

Chains are a specific business expansion model in which new business units are owned by one corporation. They use the same business formula and brand in all locations, and all units are managed by the parent corporation to which all profits accrue. Chaining is a capital-intensive pursuit. One way of thinking about chains is that the business units themselves are outlets through which the corporation sells its merchandise or services. A chain may consist of a few units in one city or region or it may be national or internationalin scope, owning thousands of units.

Franchises, like chains, describe a business expansion model which uses the same business formula and brand in all locations. A franchise differs from a chain in that the business unit is owned, usually by a local person or corporation. The "franchise" is actually the purchased legal right to operate a business according to an established formula, using the recognized brand owned by the franchisor. The term franchise also commonly denotes the business unit itself, which is independently owned and operated. The franchisor makes money by selling the right to use its formula and brand. The franchisor receives a percentage of the franchisee's gross sales and often also charges the franchisee advertising fees. Franchisors may retain an exclusive license to sell products to the franchisee, especially when the goods are proprietary. Like chains, franchises may be regional, national, or international.

Hybrid versions of these business expansion models also exist. They include:

The success of chains and franchises rests largely on standardizing business operations, merchandising, and marketing. Follow the directions from headquarters, you get a successful franchise. Follow the directions from headquarters, and the chain store you manage does well. In fact, many franchise executives say that the ideal franchisee is a former military officersomeone who knows how to follow orders.

The breadth of chains and franchises

Tiffany is a chain business. So is Family Dollar. Baskin Robbins is a franchise. So is California Closets. The customer group for each is quite different, as are the physical space needs. What they share in common is that any of these businesses could open in a traditional commercial district. Within a chain or franchise, each unit is essentially identical, but as a group of business types, they defy categorization.

The breadth of chain and franchise businesses covers every product or service available, from apparel to realtors, from appliances to pharmaceuticals, from investment brokers to cleaning services, from upscale restaurants to fast food. Chain and franchise businesses as a group cover a spectrum of goods and services almost as broad as independent businesses.

(It's true, Buff'em, Fluff'em, and Stuff'em, a Canon City, Colorado, car repair, hair dressing, and taxidermy businessand former winner of a National Town Meeting Dubious Achievement awardis not currently being offered as a franchise.) Thus, each chain or franchise type differs dramatically in physical space needs, customer profiles, and the sizes of the trade areas they serve.

A key difference when working with chains and franchises is recognizing that, unlike independent businesses, the corporation determines where it wants to expand and how many outlets it will operate in a given geographic area. In large cities, for example, Starbucks will open shops within blocks of each other; Tiffany would not or it would lose its exclusivity. Drugstore chains, such as CVS or Walgreens, might see opportunity in any and every downtown, but not in places where they've already built a strip store a mile away. Similarly, if a California Closets franchisee operates in a town in Eastern Pennsylvania, she may serve customers as far away as New Jersey or Maryland because of the economics of the business. Depending on the franchise agreement, another license to purchase may not be available within a geographic area. On the other hand, there's a more predatory strategy at play when CVS opens directly across the street from Walgreens.

Getting your house in order

So, what do you do if your revitalization program decides it's interested in recruiting chains or franchises. How do you get started?

It may seem that everyone in town wants a national apparel retailer, or everyone wants a funky independent apparel boutique, but it's hard to know with any certainty what people want, or what will work, without doing a little research. A market analysis and business development plan has many uses, but it is certainly necessary in order to speak knowledgeably with chains and franchises, whether you seek to attract or deter them.

Market analysis has been covered in these pages before (see Main Street News, "Getting Started: Retail Market Analysis, Feb. 1997; "Retail Market Analysis: Developing a Strategy, March 1997; and "The Rubber Hits the Road: Putting Your Market Analysis to Work, Dec. 1998).

Before approaching a chain, franchise, or developer, you'll want to know your trade area's buying power for a variety of products and services. Intercept surveys provide useful information about people's current shopping habits. A survey can also help quantify shoppers' attitudes about various types of businesses. More importantly, a survey can help you identify opportunities and evaluate competition by asking consumers where they currently shop for certain goods and services.

The market analysis should also assess your commercial district's current business inventory: Where is it strong, where is it weak, what are its natural product and price-point clusters? And it should assess the current inventory of available commercial space, keeping in mind that some chains and franchisesMerry Maids, for examplemay not need a storefront at all but could fill a vacancy behind or above the main street. Your market analysis should identify the commercial district's competitive advantages. Why locate here instead of in a nearby town, neighborhood, or shopping center?

Your thoughtful market analysis, incorporating local knowledge that a second-party data service like CACI or Claritas could not, will likely provide a more informed and thorough picture than most prospective chains or franchises have available. This is especially true if you are working in an urban area: demographic reports from national services tend to dismiss inner-city commercial districts in favor of easier expansion targets. This happens by virtue of the data format (spending by individual households in inner-city neighborhoods masks the collective buying power of densely populated neighborhoods) and by influence of labels applied by demographic services to these places (e.g., "Distressed Neighborhoods" or "East Coast Immigrants").

Similar problems occur with small rural communities. National data services often overlook local variations in the greater regional trends and almost completely overlook the impact of tourism; as a result, they often underestimate the buying power of some small towns.

The market analysis should lead naturally to one (or several) clearly articulated economic restructuring, or economic development, strategies. (See Main Street News, "Ultimate Work Planning," December 1999.) The strategy guides business assistance programs, business recruitment targets, district marketing and events programs, and even physical improvements. A strategy helps you determine whether chains and franchises are appropriate and, if so, which kinds. Having done your market research and crafted a well-reasoned economic restructuring strategy, you will be approaching prospective chain businesses with credibilityand having done half their homework for them.

Finding the right chain or franchise

If you want to recruit chains or franchises, Anthony Schilling of Relocation Realty advises identifying types of businesses rather than names of businesses. Be "realistic in your expectations," he recommends, and aim for businesses that fit your demographics and your physical constraints.

Many chains and franchises would love to find opportunities to locate in traditional commercial districts. In many cases they've exhausted their suburban territories and are looking for new markets and new labor, both of which can be found in downtowns and neighborhood business districts.

Herb Tyson of the International Council of Shopping Centers (ICSC) offers advice similar to Schilling's. A scatter-shot approach can be frustratingly unproductive because a given chain or franchise may not be looking to expand at that time or in your area. Some chains and franchises are strongly attached to set business formulas and will not deviate or even consider a downtown location. Formulas often include specific square footage, parking, and demographic requirements that may not fit your downtown. Tyson suggests looking by category for chains, franchises, and developers that demonstrate entrepreneurial practices, creativity in design, and a willingness to deviate from formula.

Having collected data and determined a strategy for your commercial district, you can then apply that strategy to your target business categoriesmoderately priced full-service restaurants, for ex-ample. Within the target category, list 5 to 10 chains that might be a good matchTGI Friday's, Uno's, Bennigan's, etc. Include national and regional businesses. Study their web sites; request their annual reports. Go look at their other places of business: Are any located in traditional commercial districts? What are the demographics in the surrounding area? What's their physical formula? How much parking do they have? What types of retailers or other businesses surround your target? Do office or residential uses predominate nearby? Who is the primary competition for that business? Who would its primary competition be in your commercial district?

To interest your targeted retailers in your community, you'll need to provide them with both information and leads. The top need mentioned by most franchisors is finding qualified franchisees. It's one thing for a retailer to find a community that meets its market and demographic profiles; it's another to find someone in that community with the capital, skill, time, and interest in purchasing a franchise and operating it successfully. That will be the first question a national franchise will ask a downtown management organization. Thus, it's a good idea to do some legwork and develop potential leads.

National retailers will also expect to see the kind of information they would get from a shopping mall management company. They'll want to know such things as:

The more successful you are in presenting information about your district to national retailers in a format with which they're familiar, the easier it will be for them to make decisions. Of course, you should also point out the positive ways your district differs from a shopping mall, but those details should not take the place of the basic information they'll be expecting.

Roadblocks to recruitment

Chains and franchises follow each other like lemmings. No one wants to be the first pioneer, but after one succeeds, like it or not, others usually follow.

Strategically recruiting chains

El Cajon, California, based on its assessment of downtown uses, available space, and regional consumers, recently decided to pursue two economic restructuring strategies: It plans to expand its performing arts and entertainment uses downtown, and to reinforce its resident-serving convenience businesses. To complement an existing downtown performing arts center, Main Street Manager Claire Carpenter says her organization is actively working to recruit a chain comedy club and chain restaurants. The goal is to grow a sustainable blend of chain and independent businesses so downtown has both daytime and evening uses. El Cajon, just outside San Diego, has a split demographic of rich and poor households that a standard chain's market assessment would not be able to readily decipher. When Carpenter approaches a prospective national chain tenant, she has her studies in hand. She says, "Take a new look at us. Throw away your standard model because we know we don't fit it. But you will succeed here." El Cajon has addressed some of the potential threats of chains with ordinances that limit new commercial building size and relegate parking to the rear.

Englewood, New Jersey, a town whose demographic dichotomy echoes El Cajon's, has recruited mid-scale and upscale national chains in apparel, dining, and home furnishings. A early and catalytic project hinged upon the city giving formerly industrial, cleared land (a large parcel adjacent to but behind the main street) to a regional developer. The developer built and tenanted his new project with nationals. (Though given the land as an incentive, the developer began to pay full property taxes on the improvements from the day the shopping center opened.) Other aggressive actions by the city, including use of its power of eminent domain, have assisted other developers in bringing national tenants to existing large, hard-to-use downtown spaces.

In addition to generating customer traffic, Englewood wanted chains because their extended hours would complement downtown's restaurant and performing arts offerings. Even with a list that now includes Nine West, Ann Taylor, Starbucks, KB Toys, Imaginarium, Sam Goody, Blockbuster, Radio Shack, GNC, Group USA, Mikasa, The Children's Place, McDonald's, Wendy's, and Victoria's Secret, chains still only account for 10 percent of Englewood's downtown businesses. Downtown even offers several ultra-high-end independent apparel boutiques that serve as shopper destinations. Englewood has no vacancies. But Economic Development Director Peter Beronio reports greater interest now from independents than ever before. They report feeling more secure opening a store next to a known traffic generator and the independents are willing to go in the smaller, harder-to-use spaces the chains can't.

Westfield, New Jersey (see case study on opposite page), with the aid of a commercial broker, has recruited a host of upscale chain businesses, primarily in the apparel sector. Wheaton, Illinois, has successfully recruited a number of convenience-oriented chains and franchises to fill in its downtown mix. These include Gold Crown Hallmark, AlphaGraphics, Blockbuster, Starbucks, and The Original Gino's East Pizzeria. Easton, Maryland, recruited a Talbots downtown based on an assessment of the number of people who were buying from the Talbots catalogue or traveling to its retail store across the bay in Annapolis.

The National Congress for Community Economic Development (NCCED) has forged a partnership with the International Franchise Association (IFA) to facilitate the establishment of minority-owned franchises in inner-city neighborhoods served by NCCED's member community development corporations. In distressed neighborhoods of Chicago and Detroit, the program has facilitated the openings of Blimpies, Sign-A-Rama, and others. NCCED presents opportunities to franchisor members of IFA and helps capitalize minority franchisees.

John Nelson of NCCED points out that the neighborhoods served by his member community development corporations (CDCs) reflect new consumers, new markets, and new labor pools for expanding franchise businesses. These are important competitive advantages which franchisors and franchisees might never uncover on their own.

Strategically rejecting chains

Just as many communities have engaged in ad hoc recruitment of chains, many have also fought on a case-by-case basis to prevent a chain or franchise business from opening. With the exception of design guidelines and big-box store size limitations, few communities have developed well-reasoned strategies for restricting chain and franchise growth in their commercial centers.

Coronado, California, has limited the number of "formula fast-food" businesses in its downtown to 10. There were 10 fast-food businesses in this coastal paradise when the Main Street program realized that further incursions by these restaurants might threaten the unique qualities that make Coronado the attractive destination it is. After working hard to revitalize the downtown, Main Street and the city passed an ordinance to limit the total number of formula fast- food businesses to the number that existed at the time. Now, one must close before another can open.

Port Townsend, Washington, (see case study on page 4) established, through market research and a public visioning process, a strategy that encourages independent businesses and specifically rejects national chains. Port Townsend sees its zero-tolerance policy as critical to keeping its local identity as well as its appeal to tourists.

Deborah Holley, Main Street manager in San Luis Obispo, California, takes a more moderate view: "We've always had chains hereWoolworth, Kresge, J.C. Penney's." She believes chains and franchises are a continuing part of what her downtown's economy has always included. Chains will never entirely take over downtown San Luis Obispo, says Holley, "because of our infrastructure." There's little available land, many buildings are historic and protected, and the floor sizes of existing structures are mostly too small for chain retailers.

Who to contact

Chains and franchises may come when you don't want them, but recruiting them when you do want them can be a frustrating experience as well. Gap, Inc., which finally returned the third phone message left by this writer, would provide no information on the kinds of demographics they look for, where they were seeking to expand, or how an economic development agency might effectively work with them to present an opportunity. Several other cold calls received only slightly more helpful responses. The most efficient way to work with chains and franchises is to work with trade associations set up for the purpose of brokering relationships.

ICSC. The International Council of Shopping Centers, based in New York City (www.icsc.org), is a global trade association perhaps known best for its huge annual exposition in Las Vegas where mall developers and national retailers meet. ICSC actually holds more than 200 meetings a year, many with a regional or local focus.

Traditionally, ICSC's meetings were organized around bringing retailers, brokers, franchisors, and developers together to make deals. Local government officials and economic development organizations often attended ICSC's "deal-making" conferences, but didn't have a recognized place at the table; the local officials didn't speak the same language as the developers and retailers.

ICSC established its "Alliance Program" (a series of local and regional meetings) as a hybrid, providing forums for the public and private sectors to talk candidly about goals, obstacles, and partnerships. Each camp gets to air its dirty laundry and out of the dialogue comes opportunities for mutual benefit. Alliance meetings teach the language of developers to Main Street leaders and local public officials, giving government and non-profit leaders direct access to company representatives in a position to make a deal. Local officials, after getting oriented to the world of national retailers, often go on to attend ICSC's larger deal-making meetings.

IFA. The International Franchise Association, based in Washington, D.C. (www.franchise.org), represents franchisors, franchisees, and their suppliers. Its primary purpose is to foster the use of franchising as a business expansion system. IFA maintains a web site with links to all its franchise members. IFA also offers educational programs and publications for entrepreneurs interested in franchising. The annual Franchise Redbook and the semi-annual IFA Franchise Opportunities Guide lists all North American franchisors and their business profiles.

NCCED. The National Congress for Community Economic Development, based in Washington, D.C. (www.ncced.org), is a trade association of community development corporations. If you are working in an urban area served by a CDC, and you want to recruit a franchise or help a local entrepreneur buy a franchise, NCCED provides an excellent resource through its partnership with IFA. NCCED, with funding from the Ford Foundation and private corporations, is helping CDCs identify African American and Hispanic entrepreneurs in low and moderate-income areas. In brokering franchises to sometimes disenfranchised populations, NCCED provides training and financial assistance to create new businesses, new jobs, and new wealth in the communities it serves.

Corporate real estate and franchise sales offices. If you've narrowed down the category of business you want to recruit and listed a handful of chains and franchises in that category, you may wish to call a chain's real estate office (either its local office or its corporate headquarters). For franchises, you can call the sales department. Be aware, however, that these offices may have trouble understanding how they can work with you because they are not geared toward working with economic development organizations (they usually work with developers or franchisees) and your inquiry will not fit their traditional relationships.

Developers and brokers. Developing real estate in traditional commercial districtsespecially contextually de-signed new developmentis a specialty. Few developers do it; even fewer do it well. Most developers and brokers who work in this niche of the business are regional, not national. To find them, look at projects in other communities in your area where you like the project or the tenant mix. Find out who did the project and make contact with the appropriate person to invite him or her to come look at the building or site you want to develop.

Regional chain owners. Some of the most promising "chains' for Main Street districts have only a handful of stores in their portfolio. These chains have a local flavor, a ready understanding of the market you're working in, and less commitment to a standard formula. If a regional chain fits your recruitment strategy, present your research and the opportunity you've identified to the business owner.

Institute for Local Self-Reliance (ILSR). Even if you've decided chains and franchises should play a role in your commercial district's economy and recruitment strategy, there still may be times when you don't want a chain to come to town because it directly threatens another existing business. Or it may be a chain that flies in the face of your carefully planned strategy. There are plenty of resources for fighting the big box and sprawl. One excellent resource for supporting and growing local businesses can be found at the Institute for Local Self-Reliance (www.ilsr.org) and its project, New Rules (www.newrules.org). ILSR has published a new book, The Hometown Advantage, by Stacy Mitchell (see Main Street News, April 2001, pg. 17), which provides practical advice on rejecting, regulating, and taxing chains while supporting local independent businesses.

After they come: getting chains and franchises involved in Main Street

Reports of participation in community events and revitalization efforts are mixed. Based on a sampling of interviews with downtown managers, participation by chains is generally lower than that of independent businesses. The owner is generally not home at a chain business; in many cases the owner is home at a franchise and, thus, franchisees tend to be more accessible. Most downtown managers face challenges when trying to involve businesses of any stripeindependent, chain, or franchisewhether asking for financial support, volunteer assistance, better parking cooperation, or participation in events.

Main Street directors report that employees at chains and franchises are transient, and therefore relationships are hard to build. But store managers stay around longer and, in some cases, live in the community. Some Main Street directors say that chains show greater parking enlightenment than some independent businesses, with employees less likely to park in front of the store entrance.

A few have noted growing "participation by chains, over a period of time, in Main Street events. In Westfield, for example, many of the chains this year participated for the first time in Westfield's annual sidewalk sale, having received special permission from their respective corporate headquarters. In the Fields Corner neighborhood of Boston, the McDonald's franchisee is in his store every day and has contributed financially to Main Street's work. Deborah Holley of San Luis Obispo, observed that after the initial cries, "Oh no, the chains are coming," there came a moment of recognition by some of the Mom & Pops, which Holley paraphrases as, "I'd better get out there and wash my windows."

Bound or freed by chains?

Chains aren't for every downtown or neighborhood commercial district. Main Street revitalization is about actively planning and pursuing a vision for downtown's future. That vision may or may not include chain businesses. Whether you see chains as part of your future business mix or as businesses to resist, their pervasiveness and economic power dictate that you recognize their importance and make them part of your economic restructuring plan.

Talk to Us

Athlete's Foot, Blimpie's, Dunkin' Donuts, The Coffee Beanery, Ecomat, Mail Boxes, Etc., Parcel Post Plus, Starbucks, Women's Health Boutique. They're all national retailersand they're all interested in main street locations. Whether you want national retailers in your district or not, it's a positive sign that so many of these businesses believe main street is a good retail location… again.

Would you like the National Main Street Center to help you find national retailers interested in coming to your main street? Some national retailers have asked if we could help them find main street locations. Do you think we should do it? Send us an email (doug_loescher@nthp.org) or drop us a line (1785 Massachusetts Avenue NW, Washington, DC 20036) and let us know what you think. Thanks!

Recruitment Checklist
1.Know your market and the category(ies) of chains or franchises that would work.
2.Make a list of national chain and franchise businesses in your target category(ies).
3.Make a list of regional chainsbusinesses that may have just two or three units.
4.Study your prospects, on the web and in person.
5.Attend a meeting of the International Council of Shopping Centers.
6.Gauge community receptivity to your target business categories.
7.Identify potential obstacles to a chain's openingpolitical pitfalls, public relations threats, red tape.
8.Call the real estate offices of chains in your target category (or the sales offices of franchises in your target category) and ask them what they would like to see and how you could present an opportunity to them.
9.For regional chains, call the owner. Set up an informational meeting.
10.Identify financial tools and building improvement assistance available to any new businessindependent, chain, or franchise.
11.Identify potential sources of equity to assist a new franchisee.
12.Visit a community where a chain or franchise has recently opened downtown. Ask who the broker or developer was. Call him or her and set up an informational meeting to see if you could work together.
13.Locate potential franchisees.

Case Study 1: Port Townsend, Washington: Rejecting Chains

Port Townsend, Washington (pop. 8,400), based on a customer survey that strongly favored local, independent businesses and a vehement reaction to a proposed Rite Aid development, has aggressively and successfully resisted chains downtown in favor of local businesses.

When Rite Aid revealed plans to locate a store in a former downtown bowling alley, a groundswell of Port Townsend residents banded together to stop it. Their fearin addition to their aversion to chainswas that Rite Aid would kill the independent pharmacy that had been a staple of the downtown for 45 years. They gathered 2,700 signatures from local residents who vowed they would never shop in the Rite Aid if it were built in Port Townsend. A bumper sticker campaign suggested, "Rite Aid, Wrong Town." They sent the petitions, wrapped in a big red bow, to the company. Shortly after, Rite Aid announced it had changed its expansion plans.

Following on the heels of the Rite Aid debacle, Hollywood Video came knocking. One thousand seven hundred signatures later, Hollywood Video withdrew. Today, the former bowling alley is occupied by a cooperative food store which moved there from a smaller location. As a result of these close calls, Port Townsend's economic development commission was mandated to adjust its business recruitment objectives to reflect the independent business preferences of the community. Port Townsend's Main Street program has a rational strategy for why it works to keep chains and franchises out of its central business district.

A funny thing happened, however, while the town was fighting Rite Aid and Hollywood Video: a Subway sandwich shop opened downtown! It just flew in under the radar while no one was looking. While downtown Port Townsend can't claim to be chain or franchise-free, it points out the importance of keeping one's ear to the ground.

Case Study 2: Westfield, New Jersey: Recruiting Chains

Westfield, New Jersey (pop. 29,000), has effectively sewn a quilt of national chains and local businesses. The community had ideal downtown spaces, a nearby affluent population, and a location far enough away from the nearest shopping mall. In the last 10 years, they have successfully recruited The Gap, Gap Kids, Banana Republic, Bombay Company, Williams Sonoma, Limited, Starbucks, Jos. A. Bank Clothiers, Victoria's Secret, Ann Taylor, Talbots, Nine West, and Panera Bread Company. The additions have not come without controversy, but their commercial success is indisputable. According to Downtown Westfield Corporation's executive director, Sherry Cronin, the chains have brought customers that have benefited all downtown businesses, especially the independents. Of Westfield's downtown retail (i.e., non-office) space, national or regional chains make up 41 percent of retail tenants, by occupied square feet; the remaining 59 percent houses independents.

In 1996, Westfield encountered a crisis: Banana Republic wanted to locate in a historic downtown movie theater, The Rialto. Through activism and community meetings, the theater has been preserved as an operating movie theaterand Banana Republic found space for its store just a block away. Downtown Westfield Corporation served as a mediator and communicator during the dispute, keeping the community, the commercial broker, and Banana Republic informed and involved. After the successful resolution, Downtown Westfield Corporation (then "Westfield MainStreet") received a fan letter from the president of Banana Republic, thanking the organization for "keeping us informed of the depth of feeling the 75-year-old landmark engenders, and for letting us know we had other options for a new store location."

The organization believes it has achieved a mix that works for Westfield and is working to maintain the blend. With a very low vacancy rate, Main Street is now helping independent businesses plan for succession and is thinking about how to further refine its clusters.

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