16. Business Retention and Expansion Recommendations

This section explains how market analysis findings are used to develop recommendations for:

• Retaining businesses at risk of closing or relocating outside of the business district; and
• Expanding businesses based on opportunities that have been identified.

One of the most effective business restructuring tools a business district can offer is a program to assist existing businesses in their efforts to become or remain profitable within the business district.  It is typically less costly and time intensive to help retain an existing business than it is to try to recruit a new one. Further, the success of existing businesses provides proof of the economic viability of a district.   Accordingly, every opportunity should be given to existing business operators first. 

Businesses at risk include those facing financial difficulty, owner/operator retirement, or vulnerability to new competition.  Others include businesses that believe they can be more profitable operating in a different location outside of the business district.

Businesses with expansion potential must not be forgotten.  The competitiveness of many retail and service categories requires businesses to constantly look for ways to retain and attract new customers.  A business must stay on top of market data and trends if it hopes to maintain or build market share.

The following business retention and expansion recommendations are based on an article titled 10 Steps to a Comprehensive Business Retention Program by Valecia Crisafulli of the National Main Street Center of the National Trust for Historic Preservation.  This section provides information on how to integrate market analysis data in implementing the program suggested in the article.   Additional ideas on how to use your market analysis in business retention are drawn from two additional resources: Fill-in-the-Blank Business Recruitment written by the National Main Street Center and Business Retention and Expansion published by Hyett-Palma, Inc. 

A comprehensive and formalized business expansion and retention program can be used to help a community's existing businesses survive and grow.  The University Of Minnesota-Extension has developed a nationally recognized program that brings local leaders and development groups together with Extension Educators and University faculty to help communities explore options for strengthening local businesses.  More information on the Minnesota program is available at their web site.

Step 1:  Establish a Business Retention Team

A business retention committee (team) should be assembled and given the responsibility for developing retention strategies and coordinating business assistance activities.  The committee should include four or five individuals skilled in small business banking, marketing and accounting. 

To identify potential team members, consider the qualities and types of individuals described in Selecting a Study Group" in the Getting Started section of this guidebook.

Step 2:  Know the Market

Market analysis data that has been assembled in earlier sections of this guidebook can be used by the retention team to help existing businesses make more informed day-to-day operating decisions.  These decisions can relate to inventory, merchandising, advertising and other topics.  In addition, data can be used to help make decisions related to location and business expansion.  The following information is particularly useful in business retention efforts:

• Characteristics of the business district;
• Description of the Trade Area;
• Characteristics of existing and potential customers; and
• Trends and Future Opportunities.

Members of the retention team should be given a copy of the market analysis or it should be made available on-line.  Supplemental information such as detailed demographic reports, lifestyle segmentation profiles, and consumer survey data should also be made available.

Step 3:  Create a Market Position Statement and Market Driven Strategies for the District

An effective marketing position statement identifies realistic opportunities, primary target markets, trade area and the desired business mix for the district.  It can also identify niche markets as defined by both products and/or consumer groups.  The position statement is derived from the community's vision for the commercial district, the market analysis, and the business district's competitive position in the marketplace.  Subsequent sections of this guidebook provide guidance in defining targeted niche markets and developing marketing plan recommendations including a marketing position statement.

Step 4:  Identify Key Businesses

While it is important to offer retention assistance to all business, there may be certain businesses that are critical to the economic vibrancy of the district.  These are typically important businesses that create street life, pedestrian traffic and a sense of vitality.  Typically they relate to the primary target markets identified in the market position statement described earlier.  These businesses can include but are not limited to:

• Anchors and traffic generators;
• Long-standing businesses in the community;
• Creative, model businesses;
• Large employers;
• New businesses with growth potential;
• Minority-owned businesses;
• Businesses that serve an ethnic or minority market;
• Businesses that serve downtown residents;
• Businesses that are important to the primary retention strategies; and
• Unusual businesses that add character to the district.

Step 5:  Offer Needed Business Assistance

The retention effort should address specific types of assistance identified by key businesses.  Typical areas of focus may include:

• Store presentation and window display;
• Merchandise presentation;
• Merchandise selection;
• Locating buying groups;
• Customer service;
• Developing/updating business plans;
• Accounting and record keeping;
• Compliance with local, state and federal regulations;
• Inventory control;
• Computer usage;
• Web site development;
• Personnel management and training;
• Financial incentives;
• Local code enforcement and public policy;
• Improving advertising and promotion; and
• Identifying and capturing new markets; and planning for business expansion.

Assistance can be provided through group workshops, one-on-one counseling, and making available a lending library of books and resource materials.  Local assistance can be provided by the local university Extension educators, Small Business Development Center (SBDC) counselors, Main Street program business specialists, Service Corps of Retired Executives (SCORE), chamber of commerce and other public or private small business professionals.

Step 6:  Promote Downtown Businesses to Targeted Markets

To help the retention effort, the district's promotional activities must be consistent with the market analysis data and the resulting marketing strategies for the district (see step 3).  Effective promotion of special events and activities requires knowing the best ways to reach targeted consumer groups.

To help attract the targeted markets, work to improve the district's overall image and identity through public relations, business standards, and maintenance of public areas and private property. 

Step 7:  Help Businesses Identify and Develop Opportunities for Growth and Expansion

The retention team can be of great assistance to the district by helping businesses identify opportunities for growth and expansion.  These opportunities can include:

• Attracting more customers through improved marketing effectiveness;
• Building a repeat customer base;
• Motivating existing customers to spend more money;
• Identifying new markets for current product lines through increased market knowledge;
• Adding new product lines or services to capture a wider market range;
• Identifying and adapting to business and marketing trends;
• Repositioning and differentiating the business by changing its image and product mix to capture new markets;
• Expanding existing space or relocating within the district;
• Opening boutique shops with niche product lines inside other businesses;
• Opening under one-ownership "companion" shops that support each other; and/or
• Opening a complementary new business.

Often a recruitment team can use the market analysis to provide assistance in how to penetrate the existing market more effectively.  This may simply be assistance to help businesses serve existing customers better and bring back lost customers.  For those seeking additional space, encourage the geographic clustering of businesses to increase sales by helping businesses benefit from each other's customers.  Identify products, services and other businesses for cross-promotion.  This includes identifying ways to help one business complement another. 

Plan new, market driven events that not only bring foot traffic to the business district during business hours, but also consumers.  These consumers should represent the targeted market segments most important to the business district as identified in the marketing plan recommendations.

Step 8:  Recognize Early Warning Signs of Business Failure

The business retention team should identify struggling businesses as early as possible before it is too late to provide meaningful intervention.  Often these businesses will exhibit signs of difficulty or "red flags."  These warning signals can include:

• Low or slow moving inventory;
• Cut backs in staff;
• Cut back in hours;
• Drop-off in advertising;
• Poor interior and exterior maintenance;
• Negative attitudes;
• Slow payment records or other banker information;
• On-the-street rumors;
• Poor performance of another business in the same cluster;
• An owner's personal crisis or major lifestyle change;
• A business owner nearing retirement with no transition plan;

As personal business difficulties are usually a very sensitive and confidential issue, the retention team needs to approach the subject operator in a gentle manner.  The team should assess any specific needs of businesses and offer assistance when possible (see step 5).

A common cause for business failure today is the intense competition from national discounters and category killers that sell the same products or services.  Appendix A provides a few general tips to help independent retailers that are facing fierce, new competition and the potential for business failure.

Step 9:  Plan for Business Transition

If a business owner plans to sell, close or retire, it is important to find this out as early as possible.  The retention team's role here could include:

• Serving as a liaison between business owner and potential buyers or broker;
• Identifying potential buyers;
• Developing financial incentives for purchase;
• Helping set up an employee buy-in program;
• Providing information and resources to business owners;
• Helping business owners prepare marketing materials; and
• Working with media on advertising and public relations during the transition.

Assisting with business transition requires special skills in commercial brokering and real estate.  If no one on the retention team has this expertise, it may be necessary to bring someone else on board or gradually acquire information on how to facilitate successful business sales.

Step 10:  Support Your Downtown Businesses Personally

For the retention team to maintain credibility when working with local businesses, its members need to be seen shopping, dining and conducting business on a regular basis in the district.  Becoming active participants in the downtown marketplace provides additional opportunities for visual monitoring, keeps communication channels open, and builds relationships that are an intangible but essential key to making business retention efforts succeed.

Appendix A - General Tips for Independent Retailers

Independent retailers can build their own strategies once they understand the competitive strengths and weakness of the national discounters. A prerequisite is a positive attitude and willingness to make periodic change. Independent retailers should take advantage of the fact that they can be flexible and unique. Some general tips include:

• Know your customers and competition. Use your trade association to the full extent possible. Know how to pick only those customers and products that make you money. Conduct a market analysis.

• Offer a unique and responsive product line. Localize and customize your product line and respond to changing consumer wants quickly. While you can't offer the selection of big stores, you can find out what local consumers really want.

• Offer quality and value. Offer a fresh package of values that compares favorably to the large stores. Make sure that less than 30% of your products are price sensitive commodity items.

• Create "destination density. Work with neighboring downtown businesses to create and jointly promote the downtown area as a consumer-friendly place where people satisfy several shopping needs.

• Be service and customer driven. Provide excellent customer-oriented service such as custom order capability, acceptance of credit cards and convenient store hours. Customer relations including greeting customers are vital.

• Renew your image. A unified, consistent, clean and image is critical. Use visual merchandising through window displays and store organization. Consider fresh paint, sidewalk improvements and flowers or landscaping.

• Pricing strategies. Be creative through repackaging and relabeling items. Instead of sale prices, consider issuance of gift coupons for future purchases.  Don't be preoccupied with low prices.

Source:  Lets Talk Business, September 2001.