Designing a Marketplace

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Clustering Businesses

The process of strategically locating businesses to increase foot traffic and sales is known as “clustering”—a skill perfected by shopping mall managers. The goal is for customers to visit more than one business before leaving the district. A clustering plan can help business owners decide where best to locate in your district. This is more an art than a science. A good way to figure out if you have business clusters—even if they are small or still a bit weak—is to visually map out or model your business district. The location of a business on the street strongly affects its chances of success. 

A commercial district may have a business niche without having a business cluster if those niche businesses are scattered throughout the district in a way that fails to generate customer flow from one business to the next. Businesses located near others in the same or similar niche often do better than those separated from their peers; cooperation and friendly competition can lead to more customers for all.

For clusters to be truly effective, they must reach a critical mass. Some clusters evolve from existing businesses; others are developed deliberately. There are three useful ways to categorize business clusters.

Competitive Clusters: Clustering based on similar business niches

 Competitive businesses sell the same type of products and services. There are some purchases—clothing, for example—for which shoppers like to compare prices, styles, varieties, and brands. For that reason, they like to shop for these items in different stores. Competitive businesses generally do better when clustered together, which is exactly what shopping malls do—they specialize in comparison shopping—and is a strategy you can use. Even though the stores are competitors, it is in their financial interest to cooperate.

Complementary Clusters: Clustering based on related business niches

Complementary businesses, by contrast, sell related products and services; they are not direct competitors. Some combinations of purchases just naturally go together, such as the bridal cluster that groups together everything couples will need when getting married. Or home décor businesses that sell carpets, draperies, and appliances. Complementary clusters facilitate what may best be described as “power shopping,” which lets customers easily patronize stores located near each other. While some big-box businesses are now attempting to capture all related purchases under one roof, commercial districts with complementary clusters of independent businesses have already proven successful.

Compatible Clusters: Clustering based on consumer niches

Compatible businesses may sell unrelated products and services but share customers. Consumers, like businesses, can be grouped according to commonalities. Customers who are similar demographically or psychographically will, in theory, have similar purchasing preferences. Compatible clusters include a concentration of businesses that appeal to a particular customer group, such as up-scale, senior-citizen, or discount-oriented customers. If your district has half a dozen businesses that cater to teens, for example, they will do better if they are located near one another than if they are scattered throughout the district. The teens will be more inclined to visit all of these stores if the businesses are located near one another than if they have to search for them. Compatible clusters facilitate what may best be described as impulse shopping.

Because property in downtowns and neighborhood commercial districts is usually independently owned, Main Street is at a disadvantage when it comes to clustering businesses. Unlike mall managers and shopping center directors, Main Street programs probably won’t be able to actively cluster businesses through lease management (although some programs have established first right-of-refusal agreements with property owners to govern selection of future tenants and have bought lease options to keep a space available until a mutually acceptable tenant is found).

The economic restructuring committee must be strategic, patient, and more creative than the competition and subtly influence where businesses are located. Two-way communication about the financial benefits of using a clustering plan is the key to success. Your district’s existing businesses may be locked into their current locations for a while—but, when there are new vacancies or when you recruit or develop new businesses, you have an opportunity to strategically suggest the location that will help them generate traffic. Here are some tips:

  • The economic restructuring and design committees can work together to create a pleasant streetscape of storefronts that encourages people to walk throughout the district. Storefronts without window displays, vacancies, businesses that aren’t part of a cluster, parks, parking lots, poor lighting, buildings set too far back from the sidewalk, and other situations can cause people to lose interest or feel threatened.
  • Locate automobile-dependent and destination businesses on the outskirts of the district and at transition points, which is where transit stops and parking lots/ramps should be located. Use business placement to encourage circular pedestrian movement, drawing people into and through the district so that they pass by stores that might not generate as much traffic on their own.
  • Locate “impulse” shops that sell things like flowers or coffee and stores that attract recreational shoppers in heavily trafficked areas (near bus stops or employment centers) so that they benefit from the flow of people.
  • Businesses that require planned or scheduled visits can thrive on upper floors and on secondary streets adjacent to the pedestrian core. Businesses that don’t require face-to-face interaction with customers may be better suited on the periphery of the commercial district.