Is Local the New Black?

In the wake of Enron and Worldcomm, I wrote an article on “Moving From Words to Deeds to Restore Public Trust“ that got picked up by Marketing Profs. It is as relevant to today’s outrages – just replace those guys with Madoff, the mess on Wall Street, and abuses of “rescue” funds by our biggest financial institutions. So, what have we learned since the last massive breach of public trust in Corporate America?

We expect greater accountability of the companies that enjoy our tax breaks, consume our resources, raise capital through our markets, and benefit in other ways by doing business in our neighborhoods. Most major companies launched social responsibility initiatives (or at least PR campaigns) before the September 2007 meltdown to demonstrate they understood this. But the bar is higher now that so many bedrock institutions have become beggars at the public trough. So, what are the implications for big companies? This time around, Corporate America may have died along with the idea that markets can be self-regulating.

If pendulum were to swing back toward decentralization, it would provide a way to for companies to get closer, and more accountable, to the customer and other constituents. Networking and technology provide the tools to enable many of the benefits and avoid at least some of the costs of taking a decentralized, locally focused approach to business. This is why I think local may be the new black.

There are real advantages to supporting local businesses – decisions are made locally and the people who work there are personally invested in the community since it’s where they live. In return, they support the schools, the local kids’ sports leagues, and more.

But what does local mean these days? Does it mean not-chain-store? Does it have to do with the type of real estate – not a mall? Is it about local ownership? Is it physical? I think it’s more a mindset… a commitment to serving the community, regardless of ownership, type of real estate, or number of locations. The challenge is to deliver that local, home-town feeling (regardless of where you’re doing business) consistently across locations.

Who’s doing this today?

• Real estate offices (including the regional chains) get it, and always have – they are all about the local economy they serve and are well-aware of the differences between neighborhoods.

• Local grocery stores – unlike Safeway and Whole Foods, Mill Valley Market and Molly Stones support most community events with cash and in-kind donations and they stock unique merchandise at customer request.

• Community banks & credit unions – their point of differentiation often is their support of the local economy or workers. Given their greater insight into the local market, they are more likely to make loans in today’s anti-lending environment than the big banks. And they’re getting no bail out money!

• Privately run enrichment programs for kids – preschools, arts & crafts programs and others like them cater to local families. There are good reasons why Steve & Kate’s Camp, West America Tae Kwon Do, and others like them are long-lived institutions in our town. They fill a need and make our lives richer.

With retail vacancies hitting small towns like ours hard, City Councils should be thinking about what types of retail they want to see move in. I’d suggest they consider the benefits of businesses with a local mindset, and go after these four types of good corporate citizens.

Malls Giving Way to New Formats

The tough economy has been well-documented. Still, it’s stunning to see the number of mall retailers that have disappeared this year alone. Gone are: Sharper Image, Fortunoff, Linens ‘N Things, Boscov’s, Steve & Barry’s, Mervyn’s, Circuit City, Shoe Pavilion, CompUSA and Goody’s.

According to an Oct. 6 report in the Wall Street Journal the vacancy rate at malls in the top 76 U.S. markets rose to 6.6% in the third quarter, up from 6.3% in the previous quarter, and its highest level since late 2001. Strip malls and family and lifestyle centers are also vulnerable to changing consumer preferences. Their vacancy rate climbed to 8.4% in the third quarter from 8.1% in the second quarter. That marks the highest rate since 1994, and these numbers are surely going to increase as the worst holiday season in a generation plays out.

The whole idea of the shopping mall may be losing relevance as consumers seek out greater shopping accessibility, more merchandise uniqueness, local sourcing and other priorities. The NYTimes reported on Nov. 11 that the nation’s second-largest mall owner disclosed that it might default on some of its debt obligations. General Growth’s most prominent mall holdings include Water Tower Place in Chicago and the Fashion Show mall in Las Vegas.

In fact, the Economist reported earlier this year that so many malls have died or are dying that a new hobby has appeared: amateur shopping-mall history. Like many esoteric pursuits, this has been facilitated by the internet. Websites such as Deadmalls.com and Labelscar.com collect pictures of weedy car parks and empty food courts and try to explain how once-thriving shopping centers began to spiral downward.

While malls are struggling, retailers like Tiffany’s, Home Depot, and Best Buy among others, have been experimenting with smaller format stores. FAO Schwarz launched stores-within-a-Macy’s store by this Holiday, instead of free-standing stores.

They’re experimenting with other formats, as well. Pop-up retail continues to grow. Victoria’s Secret went on campus to reach students at 23 colleges across the country with its Pink brand. J. Crew signed a 4-month lease on The Liquor Store building in Tribeca in August.

And a new form of pop-up retail has emerged. From Zoom Systems, some call it automated retail, others call it the next generation vending machine. There are nearly 800 Zoom Shops located in airports, malls and retail stores in the US and Japan. Zoom Systems offers retailers added branded distribution in high traffic, attractive locations they couldn’t profitably put a store on. Consumers are exposed to the brand in an attractive setting, and generally buy to fill an immediate need for a specific usage occasion (e.g., a gift, for personal use on an trip).

Currently, iPod, Proactiv Solutions, and Sony are among the brands sold through Zoom Systems. Sharper Image couldn’t make it in its own stores, but this would seem like a way that brand could live on. Brookstone also seems like a candidate.

In addition to established bricks and mortar retailers, the concept seems perfect for manufacturers and direct sellers who don’t have a physical presence. A Zoom Store could be an opportunity for both brand building and a revenue generation for e-tailers like Amazon or Drugstore.com and maybe even for Mary Kay, Avon, or Tupperware, though care would have to be taken to avoid alienating the troops.

Seems like a natural to put a Zoom Shop in markets where established brands are considering opening their own distribution. Expect to see more Zoom Shops popping up as brands look for low cost ways to test the waters and build awareness.