Friday, September 28, 2007

How to Chase Small Businesses from Hyde Park in 14 Points

posted by chicago pop


Mystique Boutique's New Location, 1503 S. Michigan


Let's just start with a few facts, gleaned from the most unlikely of places: the "Shopping" feature of the Chicago Tribune's "At Play" section (Thursday, September 27, 2007). It turns out that shopping advisor Ellen Warren, curious to know if the boutique scene in South Loop had yet to blossom, found that it had. And guess what? Several of the distinctive new South Loop boutiques are businesses relocated from Hyde Park.

What does this tell us about small business? 1) Businesses go where the shoppers are. 2) There aren't enough shoppers in Hyde Park. What does this tell us about Hyde Park politics? 1) Chains are not driving the mom and pops out. 2) The mom and pops are leaving the neighborhood because there aren't enough customers.

Why aren't there enough customers? Because Hyde Park NIMBYs don't want to let more people (i.e., shoppers) into the neighborhood -- just ask Jack and Jill. What may have been a tolerable business environment for a Hyde Park businessperson 10 or 15 years ago is now an insane opportunity cost, given the explosion of new households just a few miles to the north. Despite the many and obvious attractions of the Harper Court business dynamo, they are evidently not enough to distract local entrepreneurs interested in turning a profit.

Mystique Boutique, a Hyde Park mainstay for 22 years, moved to 1503 S. Wabash a few years ago, leaving us, as a reminder, the wonderfully prominent vacant storefront at 53rd and Hyde Park Boulevard. Downtown Pets, at 1619 S. Michigan Avenue, is another small business refugee from Hyde Park. The neighborhood obviously generates business talent; but it's talented enough to know not to stick around.

Why is this so? Two letters to this week's Herald (Wednesday, September 26, 2007) allow us to perform a sort of thought experiment, artificially creating the business psycho - ology of the neighborhood, allowing us to see what might discourage small local businesses from putting up a shingle here.

Mr. Gregory S. has a project to preserve and restore the historic Rosenwald Apartments on 47th Street. The problem is, he doesn't know how to pay for it. Solution? Find someone with lots of money to invest in the area. "Allowing it to crumble and decay is absurd and a real waste of what should be a great investment opportunity for someone with capital."

I agree completely. The only problem is, with the exception of Mr. S., not everyone in Hyde Park is equally enthusiastic about promoting "investment opportunities for someone with capital."

Take, for instance, a quite detailed letter from one Mr. William A. Knack, who feels that, "If Harper Court is to be redeveloped, let's do it right." Thereupon follows a 14 point list of stipulations as to just what a Harper Court redevelopment proposal should include, with tips on everything from including senior housing at the site, getting a movie theater back into the old Hyde Park theater, and telling McDonald's to get lost.

Now let's imagine Mr. Knack's 14 points getting written into the Request for Proposals that will be used to solicit Mr. S.'s "someone with capital." Ready, set, go.

I don't hear anything happening ... do you?

Exactly. Who would be crazy enough to take on the redesign of an entire neighborhood for the sake of getting their hands on some iffy real estate in Hyde Park, when the neighborhood can't even retain its home-grown entrepreneurs?

The solution is ultimately very simple. More people need to live in and around Hyde Park. There just aren't enough people here to support local merchants, and the ones who live here now are small spenders, spending below the national average in just about every category (see Lifestyle chart of spending habits by area code).

There are two ways to change this. Either 1) bring in lots more households that earn below or equal to the neighborhood's average per capita income range of approximately $35-40,000 (as of 2000 Census), or 2) bring in fewer people who earn above the neighborhood's $35-40,000 average per capita income. Either way, there need to be more people with pocketbooks. Bringing them in will only add to the diversity that the neighborhood supposedly cherishes.

61 comments:

Peter Rossi said...

This is a fantastic post. Not only are the NIMBY's scaring away any sane developer but they are driving away the very local businesses that they worship in their view of Hyde Park as Bedford Falls.

James said...

I agree with some of the points in this post, but there are some other things you should consider.

First of all, I don't like the way you're tying in density with retail development. Yes, in a large sense, higher density (and talking about "households" is an improvement over talking about population) will tend to improve retail. And, sure, reasonable development proposals like the Antaeus project at 56h & Cornell should be applauded (which doesn't mean we can't also criticize some of the features of the plan). But we're probably talking about fewer than 300 households between that project and the 3L debacles. That's probably slightly more than a 1% improvement in the number of households.

Also, this particular post needs to be compared with the leakage post: http://hydeparkprogress.blogspot.com/2007/08/leakage.html You imply here that higher density would significantly improve retail while arguing in "Leakage" that a dramatic amount of money is going outside the neighborhood. Wouldn't a larger number of households just lead to even more money going outside the neighborhood? Why or why not? What's more important-- density or leakage.

My own view is that we should increase density gradually with sensible projects. There are some characteristics of HP I don't want to lose-- like trees and smart architecture.

James said...

And this is as good a place as any to talk about "Leakage", a red herring term if ever there was one.

The chart in the Leakage article: http://hydeparkprogress.blogspot.com/2007/08/leakage.html doesn't show "leakage" which would have something to do with dollars spent outside a neighborhood. Instead, it shows something roughly akin to a trade deficit, exports minus imports in a retail sense. The chart is more important than the term. The trade deficit tells us something about a neighborhood's characteristics and the highest percentage deficits are neighborhoods most people wouldn't feel safe in. They probably correlate pretty well with crime rates.

It's absolutely insignificant how much money is spent outside of a neighborhood, though. The key indicator, I think, of how people feel about retail in a neighborhood is how much money outsiders spend there.

For instance, I doubt if many of us shop the Mag Mile or Lakeview for groceries. I'm sure a lot of cash leaves those neighborhoods for raw food as folks shop Roosevelt Road or Costco or Trader Joe's or wherever. But they feel those are great retail neighborhoods because so much money comes back in for other retail sectors. It's not the cash leaving that matters, but rather the retail trade deficit.

The worst strategy for retail in HP would be to try to keep money here by having one clothes retailer and one large grocer. That's roughly akin to the discarded "import subsitution" model of 1970s Latin America. I have a longer discussion of that in the last HPKCC Reporter and I 've posted the article here: http://alwaysintransit.typepad.com/always_in_transit/2007/09/import-substitu.html#comments

The other thing to keep in mind about the Leakage chart is that HP looks like a relatively average neighborhood in the City of Chicago. The chart breaks the city up into about 80 districts, not wards but probably census areas. If I'm reading this correctly, HP is that area of white in a sea of dark blue. My quick count came up with 28 other such "white" areas. 30 neighborhoods were blue or light blue-- the ones with worse retail trade deficits-- and only 22 were "white" or tan or light tan, neighborhoods where retail expending runs at only a slight deficit or even a surplus. That makes HP about average. Maybe we shouldn't be average, but you'd have to explain why.

Listen, the NIMBYism doesn't help any. But I think how retail is arranged geographically in HP is actually a larger problem. And larger even than that is the paucity of train transit mid-days and weekends.

chicago pop said...

As you and SR point out, there's not a lot of room to grow -- at least not in the narrow confines of Hyde Park -- Kenwood. But there's a lot of room nearby, and that could quite easily become part of the local trading area, as it has been historically. If we include HP-K with surrounding areas, there's lots of room. Anything that helps bring new households and more spending to this small neighborhood will add momentum to development of surrounding ones.

RE density-leakage. Leakage is what you get with insufficient density combined with relatively low household income. Retail categories track directly to population loss over the last 50 years. It therefore makes sense to reverse the density to the point where eventually individual businesses make rational decisions to stay, not to leave. That won't happen instantly, but it could happen in a noticeable way if, in the space of 5 years, a major hotel, and 3 new high rises went in.

James said...

Higher density will probably only help the retail climate.

You're still not being clear with how you define "leakage". If you just mean the money leaving the neighborhood, I would think that would go up as more income comes into the neighborhood.

If you mean not "leakage", but rather the retail trade deficit, then I think that would track closely to how safe outsiders feel in coming to a neighborhood and how easy it is to transport themselves and their goods back and forth.

chicago pop said...

Leakage is a ratio of money going out to money coming in. It's a trade deficit, as you say, if the former exceeds the latter. The large figures of money going out *versus* money spent locally, which I have perhaps used in shorthand form and thus misled readers, is a suggestive indicator of how hard it is for someone to get what they need on a daily basis, logistically and financially. It correlates to the larger issue of "spatial mismatch" between jobs and workers that afflicts much of Chicago v-a-v the suburbs.

More people coming in will increase leakage unless this improves the business climate enough for entrepreneurs to open shop. The the local retail spending figure would go up to take advantage of neighborhood "liquidity" and the deficit would drop.

It's not automatic, it depends on individual decisions, choices, and other factors like infrastructure, safety, etc. but density is a precondition to getting closer to some livable trade balance, even if this is still a net deficit.

SR said...

Jeez, again with the fast food thing. If you count storefronts on 53rd St., probably a third that have been in business for more than a couple of years are fast food places. I’d rather have more different kinds of stores in the neighborhood too, but it’s not like Subway or whatever is crowding out all these other theoretical businesses. Does the author of this 14 point plan think it’s just normal or something to have so many empty storefronts on a main business street like 53rd?

And again with the NIMBY guy getting published in the Herald and us just complaining about it to each other here. I’m regretting getting bogged down in philosophical issues in the comments thread to the mobocracy vs. good ideas post, so belatedly I’d like to ask:

Who here wants to try to DO something about all of this? It seems to me most people commenting here agree on some specific issues despite any number of gray areas about the bigger development picture. I’d be willing to put a certain amount of time into working on a couple of things, though my experience from my student days has been that organizing anything, even something that seems pretty small, takes a lot more time and energy than you’d think. I’d be interested to know how many other people might potentially be interested in doing some work, what kinds of stuff of it would be, how much of a time commitment it would be, etc.

I wonder if maybe ya’ll could poll your readership and ask, which thing are you willing to work on (fixing the Point, getting the McMobil development rolling with the planned 8 floors and 1:1 parking, getting the hotel project at Drs Hospital rolling, getting a chain grocery store into the neighborhood, doing something about deteriorating public art in the neighborhood, whatever else I’m forgetting), and at what level are you willing to participate (which, off the top of my head, could be things like going to planning meetings, joining neighborhood organizations, writing to the Herald, writing to the alderman, writing to the Maroon, door-to-door leafleting, petition drives, talking to business owners about posting flyers pointing to the blog or supporting specific projects, whatever other obvious stuff I’m forgetting).

It could well be that there aren’t enough people with enough time right now to really organize anything effective, but if there is, maybe we could get at least a few things done. Really just a commitment from a few dozen people to write letters to the Herald would probably do some good; it would a least undo this impression that the neighborhood really is united behind the knee-jerk anti-development agenda.

James said...

Ok, but I think we would do better to concentrate on transit in the near future and coming up with a better plan for the geography of retail as a long-term strategy. Density certainly helps.

If the problem is access to necessities for those without cars, that's a somewhat different problem than the retail trade deficit. For instance, HP is the best neighborhood in the Midwest for book-buying. If we were leaders in another 10 retail sectors, we might have a retail trade surplus, but still be deficient in groceries or clothes.

As an example, if you stand at the corner of Belmont and Halsted, it's a bit of a walk to a grocery store of any size. But transit is great at that location and the rest of the retail is so awesome, that you don't really notice so much.

So, I really believe that the answer is better transit, more than anything else. It's something that could be done quickly without harming the urban environment.

James said...

SR,

I posted in another comment thread that I thought folks should get involved with TIF and HPKCC. I also would suggest forming a group in HP that argues for New Urbanism principles.

To overcome Nimbyism, we should acknowledge that development will sometimes inconvenience the immediate neighbors but that Nimbyism harms the larger neighborhood as well as encouraging urban sprawl, which harms the planet.

James said...

I'd also start referring to the Nimby gripes about free street parking as "creeping suburbanism".

chicago pop said...

SR: Yes!

[Just as an aside, media is important, and people do read it, even "important" people! You'll have to forgive the academic in me for encouraging an occasional bogging-down.]

Long answer: Let's start small. How about with the next 53rd St. TIF meeting in Nov? (Partial credit here goes to our worthy tagger-along, James) Preckwinkle was practically begging more (and probably more diverse) people to show up in her bit in this week's Herald. That's where we can deal with stuff that we're all interested in: parking, new retail, new housing, overall redevelopment, density, etc.

I'm open to other, focused ideas, too.

We can go from there as situations warrant and as we are able. The blog is good for thinking big, and testing out ideas, refining arguments etc. For practical purposes, focus on one good local issue seems like a good way to start (and all I -- father of one -- have time for) we can go from there.

As for letter writing, I say forget the Herald. I've written the Herald numerous letters under my own name and it's like p*ssing in the wind. If we write, let's send them all directly to the Aldermen. They send them to the Herald anyway.

chicago pop said...

More ideas:
Did anyone notice in this week's Herald that Hairston is talkig to Target??? Hello?? That's a no-brainer. I've been told that she's hesitant to do some of the hard dealing that such a project would require (land assembly -- i.e, condemnation) so I think she needs mucho support/pressure. Can you imagine a Target down on 70-something and Stony?

James: Transit is the holy grail, but Hayzus, in this climate plugging for new infrastructure seems like a sure road to mega-frustration. Certainly something that we could publicize...

James said...

I'm not asking for new infrasctructure-- or not much more of it:
http://alwaysintransit.typepad.com/always_about_transit/2006/02/gray_line_lite.html#comments

chicago pop said...

You can tell you're in a university neighborhood when even the local activists start handing out reading assignments.

We'll get to the Gray Line after we get through the ISI disquisition -- thanks for the link!

James said...

That link got truncated in my browser. Let's try this one: http://tinyurl.com/2tkssm

SR said...

Is bribing a chain grocery store to move into Hyde Park something we can do with TIF money? (There are several locations that might be big enough, the old 47th St. Coop site, Harper Court, Borders when it closes). I'd be down for asking for that, I think it would get tremendous support from the neighborhood.

Probably we should think of a nicer word than "bribe."

chicago pop said...

Well, they're already using TIF money to subsidize building refurbishment for 53rd St. merchants -- I don't know if this has been put towards renovating the old Mr. G's location before 53rd St. Produce moves in, but that's one way to help.

Otherwise, I think getting another big supermarket in would be a nice goal for organizing, perhaps there's a letter-writing campaign for Preck/Hairston.

Elizabeth Fama said...

I don't think a letter-writing campaign to Preck/Hair will achieve anything. For instance, Preckwinkle WANTS a grocery store in the 47th Street location -- Trader Joe's is highly requested by her Kenwood constituents -- but she can't entice any big names. I think TJ's even did a marketing study for that location, and concluded...you guessed it: not enough density (within whatever mile radius they like to draw).

chicago pop said...

E-Fam: good to know. Don't want to waste energy. It's back to density -- in HP and around.

James said...

Ay yay yay! You know, even if density were the Holy Grail, it's possible that the route to much greater density follows a winding path. Sometimes, the indirect route is the fastest.

One of the reasons you guys need to elect people you trust to boards is so you can have a better idea which levers you need to pull.

Look at a map of HP. What two land uses take up the most available open space-- places where new retail could be built?

Famac said...

It should also be noted that Hyde Park retail rents, particularly spots owned by the U of C, are incredibly high.

All of the small businesses making a go of it have to sibsidize the Co-Op I suppose.

James said...

I suppose you're kidding, Famac.

J/tati said...

I'm not in the real estate business, but I have rented a small retail space on South Hyde Park since February. I searched for about six months, both in and outside of Hyde Park and saw several dozens properties.

At least in regards to smaller retail spaces, Hyde Park is not exactly overpriced. The problem is rather one of availability. During my search, I kept running into the same people; like me, looking for smallish spaces for boutique retail. We were looking in the same neighborhoods: Ukranian Village, Lincoln Park/Old Town, Edgewater near Loyola, and Hyde Park. The prices were pretty consistent, but the problem was that HP had so few!

Granted, density and demographics favor these other neighborhoods, but then again, there's a lot less competition here. I meet many Hyde Parkers who bemoan the lack of specialty retail like mine, and I'm not entirely certain it's due to lack of entrepreneurial interest. It also has a lot to do with the fact that there are very few units under 3,000 square feet!

This may be heresy, but I wonder whether part of the problem isn't that commercial rates are *too low* in Hyde Park. What I mean is that the failure rate and churn of small businesses is much higher in the other neighborhoods mentioned.

I just feel sometimes like my cohorts are lazy and have it too easy, paying $10/sf/year. We could afford to lose a handful of computer repair booths/cobblers/salons if it meant bringing in artisinal cheese, handmade stationery, a Belgian milliner, or a proper florist (all businesses that I shared my search with). I love my little store, but I'd be willing to pay 3X for a boutique on 57th!

And how is it that there are so many ground floor retail units in Hyde Park dedicated to office space?!

James said...

I mean, it's not enough that the Co-op is blamed for Hyde Parkers shopping on Roosevelt Road, even though the Co-op's sales have been flat for the last ten years and even though Roosevelt Rd has some very attractive stores now.

Somehow, the Co-op is even responsible for the high rent other merchants pay for University rents, even though the University has made no such claims and this crowd would believe them less if they did make such claims. And as if the Co-op were the only business in HP behind on its rent...

I mean, the ridiculous notions some people have. Somehow the Co-op is responsible for... well, who knows what it will be tomorrow. Will she someday use this blog to accuse the Co-op for bringing on shorter days and longer nights? Maybe Famac will tell us next week that the Co-op made her cheat on her significant other. Maybe the Co-op's dingo stole her baby. Where will it end?

Famac said...

James

If you have one business not paying its rent, while others are paying - and as the landlord, you don't abandon the business - isn't that subsidization?

SR said...

j/tati: "It also has a lot to do with the fact that there are very few units under 3,000 square feet!"

You know, you would expect a free market to solve that problem by encouraging owners of larger spaces to subdivide their properties, to make them sellable to the larger pool of potential renters.

I really wonder how many of the larger spaces in the neighborhood (like the abandoned gym on 53rd St.) are owned by the University. I always suspect that the properties that perennially stand empty for months and years are theirs. It would make sense, they're not in the landlord business to make money, they're in it to control the character of the neighborhood. This may well be why there's so much office space on the ground floor in the neighborhood too.

James: "Creeping suburbanism." Ha! I do wonder why environmentalism doesn't seem to be putting even small chinks of guilt into the parking-entitlement armor around here ...

Elizabeth Fama said...

J/Tati -- I'll go one step further in your heretical remarks and say that we could use one fewer low-priced Thai restaurant. But the problem with getting a Belgian milliner (isn't that a hat maker?) in Hyde Park is that a business like that would REQUIRE traffic from other neighborhoods in order to succeed. I think we've established that north siders don't shop in Hyde Park, whereas students really seem to love cheap Thai food.

James said...

Famac:"If you have one business not paying its rent, while others are paying - and as the landlord, you don't abandon the business - isn't that subsidization?"

Think through what you're saying. What does "abandon the business" mean?

Let's say the University was subsidizing a specific business (and I'm not saying that). Why would that affect anyone else's rent? What microeconomics model are you working from?

J/tati said...

The Belgian milliner was interested in both living and working in Hyde Park. She originally was just condo shopping, but thought it would nice to have a storefront studio here too. Most of her business is wholesale and special orders.

Not entirely true about north siders not shopping in HP. In addition to the book business, my shop is proof positive not only that it can be done, but that it can be overdone. In fact, demand got so out of control over the summer that I had to close the shop for a month just to catch up on special orders. When I re-opened the shop in September I instituted a new locals-only policy and now basically only serve Kenwood, Hyde Park, Woodlawn, and South Shore residents and workers.

I have a custom bicycle business, so it was very easy to see what was happening. In April and May, I received over 40 orders. (This exceeded my projection for the entire year.) Less than 10 were from local residents, and the rest were from Lincoln Park, Ukranian Village, Wicker Park, Evanston, and Pilsen. I had to turn away dozens of orders in June and July, and even had to bribe a journalist for the Chicago Reader to kill a planned article on the shop, lest the hype grow any greater. So maybe it's true that *in general* north siders don't shop in Hyde Park, but in my narrow experience the exact opposite was true. Not only were north siders coming to shop, but by doing so they were monopolizing my time and ruining the community feeling of the place. On weekends it was particularly a problem, because the space can only handle four or five people at a time. So I kicked them out! I opened my shop in Hyde Park because I saw a need. Even without the north siders, I am busy to full capacity, and so the decision was good and I hope to continue to do my best for our little under-served community. I so desperately would like to see others forge a similar path.

I am sure that my story is more indicative of a general hunger in the neighborhood for anything unique and passionate, rather than any kind of entrepreneurial skill of mine. I've not advertised. The store has no sign. I don't take media calls. And yet it still does reasonably well. I guess what I'm trying to say is that there is a kind of malaise... a pervasive negativity on this blog (and I guess in the air sometimes in Hyde Park) about innovative and/or independent retail, or the lack of Good Things in general. I'm guilty of it, too. But it's really clear to me that all it requires is a little initiative and some hard work... because the immediate local support is wide and deep for boutiques like mine.

chicago pop said...

These last few posts from J/Tati have been tremendously illuminating for this blogger -- a precious rare set of data points from a small business operator about how things go down in this awesome but strange neighborhood of ours.

A few key takeaways for further research: 1) North-siders are willing to come down here if the attractions are strong enough. The book market is proof of this. And so is Tati bike shop. 2)Hyde Parkers talk about local business but a) don't step up to open them and b) if they do they tend to get frustrated and leave. Perhaps Tati will be the exception? 3) There is something funky going on with rents in Hyde Park that no one can figure out. I've been told they are abnormally high on 53rd, seediest dive-bomb stretch in the whole neighborhood; I've also been told (by J/Tati on this blog) that elsewhere they are abnormally low. There is too much street-level office; there are not enough boutique-sized spaces; how much does the U of C own and sit on? Is there suppressed demand, or insufficient demand? Perhaps both, depending on the retail category?

All vexing pieces of the puzzle. Kudos to Tati for taking the bull by the horns and opening a damn boutique in this neighborhood. We CAN be upbeat once in a while!

chicago pop said...

J/Tati--perhaps if you consider this blog a sort of "media boutique" - excruciatingly local, meeting unmet local needs, with pretty good initial response -- then you might see it as answering to your call in its own way.

At least, it will have to do until I open my cheese shop.

J/tati said...

Chicago Pop:

I don't have many data points to go on, (and if my landlord is reading this... well, I hope she realizes how thankful I am) but in my observation it's the independently own spaces that are well below market rate. The new MAC-managed spaces are basically priced spot on, and the University owned units aren't so much overpriced, as they are simply unavailable.

The going rate for a small boutique/hair salon/cobbler/cleaners unit like mine varies from $500 per month (ie cheaper than Chatham or Woodlawn) to about $2200 in Hyde Park (higher than Lincoln Park, lower than Gold Coast). That's a pretty crazy delta in my opinion. But I guess real estate market isn't entirely rational and this market is too small to follow actual supply and demand rules.

Famac said...

James says "Think through what you're saying. What does "abandon the business" mean?

Let's say the University was subsidizing a specific business (and I'm not saying that). Why would that affect anyone else's rent? What microeconomics model are you working from?"

I do think, thank you. My ponytail isn't that tight.

Most larger organizations use a concept called return on equity to manage their portfolio of assets.

When an asset is underperforming its target return, its usually fixed or sold. In the case of the Co-Op, either it turns around or you find another tenant.

Now consider how large the Co-Op is in terms of the Universities book of retail properties.

For their whole book of business not to look like a complete disaster to anyone in a watch dog role, they have to be plugging that hole somehow.

Also note how long the Cohn and Sterns property was empty - is that a sign the rent was too low? Not enough customers, or the rent is too high - they are interlinked problems.

Elizabeth Fama said...

I'm fascinated by J/Tati's experience with north side customers. I honestly didn't think that sort of traffic was happening with ANY businesses here. C-Pop, I wasn't even sure it was happening with our independent bookstores (speaking of which, do you have at least anecdotal evidence of that -- or perhaps we could ask our bookstore buddies?), and they're awesome businesses that are worth the trip.

Is it possible that Tati's high north-siders traffic was correlated with the accessibility of his (her) shop to the bike path? In other words, bikers DO venture south on the lakefront, but I still harbor this hunch that north siders don't drive here deliberately to do business in Hyde Park.

Also, J/Tati admits his prices are reasonable, and if the other bike shops charge much higher prices we could just be seeing market forces at work -- good quality + low price = high demand. Maybe cyclists are willing to shop around for prices more than other customers; and maybe they have a close-knit community, so word spreads fast.

You can see, I'm still incredulous!

J/tati said...

Elizabeth,

I don't want to hijack this thread and make it about my shop, but to answer your questions:

The cycling access issue is important. However, in respect to most of the north side customers... these were almost exclusively people with incomes well over the neighborhood median, many of whom drove down (in Audis, E Class, Lexus -- I am really sensitive to that issue, so I watch closely) to order relatively expensive custom bicycles priced between $1,000 and $3,000. For these customers, path access is inconsequential. More importantly, although the store is on a busy street (S Hyde Park) it is very low profile, and even if a cyclist happened to wander by after a nice ride on the path, they'll very likely miss it. The reason for the spike in business was strictly word of mouth. Every single new customer had heard of it through another customer, or they'd seen a bike on the street, asked about it, etc.

Pricing is an altogether different issue for me. I have a pretty strict "locals only" policy, such that prices are extremely elastic. Basically, I double or triple prices for non-south siders. This hasn't entirely stopped them from shopping here, but it's helped. For basic goods, I charge MSRP only (with small discounts for students and Bicycle Federation members) but for labor, things are also really variable. For kids and the local teenage boys, labor is free. There's some complicated thinking behind that, partially charity and partially a defensive move...

For working poor (I have maybe a dozen regulars who work in kitchens around HP and live in Pilsen) I charge whatever they can pay, which is usually about 20 cents on the dollar.

But for everyone else, it's list price. So maybe I wasn't really clear before about that.

***

And a few other anecdotes. Most everyday cyclists tend not to be far more service and convenience conscious than price conscious because they tend not to be super mobile and just need the bike to be repaired correctly and quickly. It makes no sense to drag a bike out to the suburbs or downtown for a tune-up just to save $10...

So you're partially right. It's a close-knit community, and word spreads like wild fire... but it's a function of innovation and good service, not price. If it were all about price, then the chain stores would dominate. The internet has already taken all the price conscious customers away from the little guys like me.

I have spent the last several months thinking and talking a lot about these issues, and using my shop as a lab to test some of the ideas. I too thought price was the driving function initially, but it's clearly not. Maybe it's because I serve tea, I dunno.

***

Does my story have anything to do with being located in HP? I dunno. If it were located in Wicker or Evanston or Pilsen, I guess the same thing might happen. But on the other hand, in terms of the local market and the amazing support (and unsolicited advice) I've received from my neighbors and customers -- for that I am eternally grateful.

If other boutique businesses can tap into that resource, I really do see passionately managed operations blossoming here. The desire to have an excuse to shop locally is quite tangible and it extends beyond the bicycle category obviously.

Famac said...

j/tati - a very small sporting good shop failed in the Co-Op shopping center a few years back - as did the tennis shop in Harper Court.

Biking is a hot sport, and your product is obviously excellent and unique.

If a guy is willing to ride 25 miles on the bike path, he's probably willing to do just about anything!

James said...

Famac:"When an asset is underperforming its target return, its usually fixed or sold. In the case of the Co-Op, either it turns around or you find another tenant."

I didn't say you're not thinking, just not thinking this thru. So, think this thru: what would it mean to find another tenant? What would have to happen? You don't just snap your fingers and change out tenants, right?

A couple facts about the Co-op being behind in the rent. Until Jan of this year, we had gradually built up to being 5 months behind. The additional months behind have happened this calendar year. My point is that the really egregious unpaid rents are recent.

Another fact to consider. By not paying rent, we've been able to keep the shelves stocked.

khs said...

As small business person who rents a few properties from the U of C I’m amazed to hear there is still reasonably priced retail space available in Hyde Park. My rents are unquestionably on the high side - upwards of $38/sq ft in two locations with absolutely no services, a yearly PMI increase and I have to pay the property taxes.(who does this?)

It’s been my experience (as well as may other retailers) that University Real Estate makes it abnormally difficult to do business in the neighborhood with ridiculous lease clauses, high rents, and their general controlling nature. It’s no wonder so many stores have gone out of business on 57th St.

J/tati said...

khs: I did get lucky, yet. Last winter I narrowed my choices down to three units, all near the intersection of S Hyde Park. One unit was so ridiculously overpriced that I couldn't believe it. I guess a popcorn store (whatever that is) will be filling the spot.

On the other hand, my funny little studio *does* have a radiator mounted to the ceiling (?1) which leaks of course.

famac: yes, cycling is now experiencing two simultaneous waves in Chicago: the "green anti-oil" wave among high end commuters (see our Mayor's recent pronouncements on this topic) and a redux of the 70s road bike boom (the lakeshore path is clogged with lycra clad folks as early as 7am). It is a feast or famine business, and fortunately times are good at the moment. Still, Hyde Park will always be good for bicycle services given the low rate of auto ownership, access to the path, and university population.

Famac said...

James: "I didn't say you're not thinking, just not thinking this thru."

:) That's funny, anyway.

James: "So, think this thru: what would it mean to find another tenant? What would have to happen? You don't just snap your fingers and change out tenants, right?"

You've used the word "we" a lot in your last post, so I'm assuming you are a Co-Op insider of some sort.

Your comments chill me to the bone. If I read between the lines, you seem to be suggesting that the University won't let the Co-Op fail because they couldn't find a tenant to replace them!?!

To me, this is screaming Pullman Town like no one's business!!

Let's just push this logic to its limit and see what happens.

If the University charged no rent, how many grocery stores would take the space? I bet every chain in town would be in line.

So clearly, the combination of the rent and potential revenues from the site don't add up to a profit (as you must be fully aware).

The rent is too high, or the Co-Op would be long gone and replaced by a new tenant. No tenants will accept the terms.

The University owns tons of property in Hyde Park, but the've also consumed a great deal of the area as the University expands.

As the wealth level of students rises, expecting them to patronize struggling Hyde Park businesses is a recipe for disaster.

The University is using a business model that they've outgrown, and its destroying Hyde Park retail.

Too many eggs in one basket. I bet the guy who runs the Universities retail rentals doesn't even live in Hyde Park.

James said...

Famac: "Your comments chill me to the bone. If I read between the lines, you seem to be suggesting that the University won't let the Co-Op fail because they couldn't find a tenant to replace them!?!"

No, I'm not commenting on that either way. I'm trying to get you to understand the process. It's not a matter of the Univ letting the Co-op fail. You seem to be suggesting that the Univ should start eviction proceedings because the Co-op is behind on the rent. Is that what you're saying? If so, what would happen next? Think this thru.

Famac: "The University is using a business model that they've outgrown, and its destroying Hyde Park retail."

What are you talking about? What business model? And how is it destroying HP retail? You're just making wild assertions.

Famac: "I bet the guy who runs the Universities retail rentals doesn't even live in Hyde Park."

The guy specifically responsible for the Univ's retail rentals is a woman. Why does it matter whether she lives in HP or not? Wouldn't you want her to live somewhere that has a healthy retail climate so she knows what she should aim for?

Famac said...

James: "You seem to be suggesting that the Univ should start eviction proceedings because the Co-op is behind on the rent."

That's what generally happens.

James: "Think this thru."

I am thinking, thanks again.

James: "What are you talking about? What business model? And how is it destroying HP retail? You're just making wild assertions."

The Pullman Town business model: own the bulk of rental properties to control the neighborhood and extract profits.

The problem is, the growth of the University has resulted in less population to support the stores, but the University isn't lowering rents to reflect declining sales.

The rest of the retail renters in Hyde Park follow the Universities lead with high rents, thus large vacancies.

James: "Wouldn't you want her to live somewhere that has a healthy retail climate so she knows what she should aim for?"

No, I think people working for the University that make important decisions about Hyde Park should live in Hyde Park. She can drive to areas with healthy retail climates, just like everyone else.

James said...

James: "You seem to be suggesting that the Univ should start eviction proceedings because the Co-op is behind on the rent."

Famac: "That's what generally happens."

And then what happens next?

Famac: "The rest of the retail renters in Hyde Park follow the Universities lead with high rents, thus large vacancies."

You're offering no proof for this assertion. Why should we believe you instead of JTati who stated earlier in this thread:

JTati:"...in my observation it's the independently own spaces that are well below market rate. The new MAC-managed spaces are basically priced spot on, and the University owned units aren't so much overpriced, as they are simply unavailable."

My read of the University's motives is that they care less about making money and more about controlling their environment. Granted, money helps them with the latter, but it's a means to an end.

KHS stated:"It’s been my experience (as well as may other retailers) that University Real Estate makes it abnormally difficult to do business in the neighborhood with ridiculous lease clauses, high rents, and their general controlling nature."

I hear more complaints about the lease clauses than about the high rent, but his experience is noted.

Famac, if you really believe that the Univ is somehow charging too much for rent and that then the independent retail property owners are following their lead, thus creating vacancies, then you'd have to explain one of two things to be creditable.

1) Do the independents do this because they're stupid? They lose money on vacancies, after all.

or 2) Do the independents have some scheme we don't understand whereby they somehow benefit from unrented properties?

Why don't you trust market incentives to sort this out?

chicago pop said...

The rents on 53rd, according to my information, are indeed high, at around $40 sq.ft. enough to scare off small retailers. Whether this is caused by the University setting the rate in a neighborhood with a shortage of retail space, I don't know. But it very well could be. It could also be just plain greed, and there's some evidence for this. Some local landlords don't want to do what it takes to attract national chains, or want something simple and quick, like a bank branch. The whole saga of Istria having to wait forever to get into HPAC, after getting jerked around by METRA because the latter didn't want to build out the plumbing at the 51st St. viaduct is a case in point. The guys on 53rd could have nationals if they were a little more savvy, is my sense.

Getting cool retail takes much more deliberate preparation.

J/tati said...

I don't really consider $40 too high if the space is small.

I think Hyde Park could use two different categories of dynamic retail. One type is like mine: small footprint, artisinal, independent. We can pay higher rates, but time is more valuable than money, so we can't wade through 30 page lease agreements and wait 3-6 months for decisions (and I'm not talking about zoning or permits)... but this is kind of true when leasing from government and larger institutions in general.

The other category is high quality, well funded medium sized operations that have proven highly successful in similar neighborhoods... local chains... something like Bleeding Heart Bakery or Metropolis Coffee or a great Vietnamese or Mexican restaurant. Larger boutiques like Penelope's in Ukranian Village. Paper Source in Wicker Park, etc etc. These businesses have access to greater capital obviously and can absorb the costs of an unpredictable lead time. There is a strong captive, willing audience for these businesses here! Nevertheless, perhaps this is yelping to the choir on this blog, I dunno.

chicago pop said...

J/Tati: for something like a coffee shop or a bakery I would imagine that something between $40-50/sq. ft. might be more challenging than for a bike shop that can conceivably bring in higher marginal returns off a $1,000 frame. It takes a lot of lattes to match that!

But with those specialty local chains (Red Hen is another fave) you run into the landlord problem: are you gonna have to bust heads to get the right build-out for your coffe shop or bakery?

Famac said...

James said:

"1) Do the independents do this because they're stupid? They lose money on vacancies, after all."

What if they own the property outright? All they lose is property tax and opportunity cost.

Many don't understand the latter.

And yes, they are probably stupid, too.

"2) Do the independents have some scheme we don't understand whereby they somehow benefit from unrented properties?"

Perhaps it doesn't hit the bottom line (see above). The guy who owns the Style International space is 80 years old.

To all: Vacancies = High Rent

Its simple economics, as I explained earlier. You can't compare other neighborhodd rents to Hyde Park.

Isn't that what this blog is about?? Why we need progress?

James said...

Famac: "To all: Vacancies = High Rent."

That flies in the face of simple supply and demand theory. Why would Hyde Park get more than its share of "stupid" commercial independent property owners? That's the portion of your theory that makes no sense to me.

J/tati said...

Said c-pop:
But with those specialty local chains (Red Hen is another fave) you run into the landlord problem: are you gonna have to bust heads to get the right build-out for your coffe shop or bakery?


That is a very good point. In my case, I had to kind of beg for a "build-in"... I actually wanted to *remove* street signage in order to return the (older and quite attractive) building facade to its naked self, opting instead for a restrained window laminate and a lower key appearance. I really dislike the way bad signage proliferates throughout the neighborhood and didn't want to contribute to it. In my case, the unit had a huge, hulking wooden sign 10 feet wide by 1.5 feet tall. The pale brickwork behind it it now exposed again, presumably bringing it back to its prewar appearance when my space was a cobbler's studio or a tiny speakeasy or a gumshoe's office.

Famac said...

James: "Why would Hyde Park get more than its share of "stupid" commercial independent property owners? That's the portion of your theory that makes no sense to me."

That's easy: I would guess that most of the people who own retail property in Hyde Park are elderly. They don't have a mortgage on the property, they own it outright. That's the case with my hairdresser's landlord, as explained last post.

So, when a rental property represents mostly cash flow with minimal cash outlay, you might be tempted to stick to a high rent, even though its no longer viable in the area. Afterall, all you have to do is cover the property tax if the place is empty.

On a related topic:

Why do you think that MAC group bought that entire portfolio of properties from that old real estate company? Because the old owners were smart enough to figure out the gig has run dry, and they got the hell out.

And guess what, there's a MAC for rent sign every twenty feet in East Hyde Park.

So it is supply and demand, and we are somewhere up to the right on the supply curve from the intersection of the two curves, sometimes know as market equilibrium.

James said...

Famac: "Why do you think that MAC group bought that entire portfolio of properties from that old real estate company? Because the old owners were smart enough to figure out the gig has run dry, and they got the hell out."

Ok. so why did Antaeus buy these properties. Let me guess-- you think they're stupid? Like your Co-op eviction plan, this is another thing you've thought about, but you haven't thought thru.

And you think elderly people are more likely to charge high rents and be content with vacant properties? Really?

Famac said...

James

It's been me on defense, with you coming up with nothing but "think this thru."

Please explain why you think the MAC group brought those properties.

curtsy said...

"And you think elderly people are more likely to charge high rents and be content with vacant properties? Really?"

It would appear that ageism is again rearing its ugly graying head.

James said...

Famac: "Please explain why you think the MAC group brought those properties."

In short, because they wanted them. They're bullish on Hyde Park. In fact, they've sunk a lot of money into this neighborhood. The point is, for every seller who believes a property should be sold, there's a buyer wanting to sell it. In your sour way, you're interpreting a property sale in the most negative way possible.

AFAIK, I've never met the former property owners. But I have met Eli Unger and I'm very impressed. He'll be taking questions from our neighbors on Tuesday, Oct 16, 7pm at the Neighborhood Club in an event hosted by HPKCC. This would be a chance to show some appreciation to a developer-- to walk the walk.

Famac said...

James said: "In your sour way, you're interpreting a property sale in the most negative way possible."


No, that's how I'm interpreting all of the "for rent" signs in front of their properties.

You know James, you really should spend some time thinking about how you interact with other people. I've never lobbed an insult your way, yet every one of your posts has some kind of needless dig.

If you want people to respect your opinions, try a little civility.

curtsy said...

As for the presence of "MAC 'For Rent' signs every twenty feet in East Hyde Park", I find it amusing that famac and letters to the Herald conclude that this is clear evidence of growing vacancy rates. Given the number of properties under MAC's management, I see it simply as evidence of MAC's marketing. Just because there is a sign hanging from the building doesn't mean that there is necessarily a unit in THAT building available. However, call the MAC number, and they will certainly have units available in the area.

curtsy said...

I, too, read with amusement this "14 Point Plan" in the Herald. Given its "Emily Litella-like" quality, this letter or "PLAN" can hardly be taken seriously. Yes, some of THE PLAN echoes NIMBY attitudes, however, it reaches a point where I expect a proposal to ban the letter P from the English language.

On the other hand, I know a few of the co-signees of the McMobil petition, and they are far from being senile crackpots (or self-serving elitists.) In fact, they are seriously committed to the larger community/society via community service and social justice. Recently, one of the signees shared with me, without prompting, that he thought the reference to "excessive blocking of sunlight on nearby homes" was, in his words, "NIMBY" and should not have been included. He also felt that the height restrictions could be reasonably extended beyond 4 stories (however, if the developer wants a variance, which is necessary to build beyond 4-stories, then he will need to play ball.) Furthermore, my friend completley agrees that Doctors' Hospital is not architectural significant and that a hotel development makes good sense.

So, in the words of Gilda Radner's Emily Latilla, "Never mind."

Chevy Chase: Weekend Update recognizes its obligation to present responsible opposing viewpoints to our editorials. Here to reply to a recent editorial, is Emily Litella.

Emily Litella: I'm here tonight to speak out against busting schoolchildren. Busting schoolchildren is a terrible, terrible thing. I hear this is going on all over the country. Mean policemen arrest little children and put them in jail in the wrong neighborhood, so they can't even play with their little friends. Imagine, busting schoolchildren! The food in jail isn't good, and even though they get bread, I don't believe they can get toast. Or nice cake. Now, who will tuck them in? Where will they hang their leggings? Where will they set up their little lemonade stands? Well, they don't have toys in jail, except maybe..

Chevy Chase: [ interrupting ] Miss Litella?

Emily Litella: Yes?

Chevy Chase: I'm sorry. The editorial was on bussing schoolchildren. Bussing. Not busting.

Emily Litella: Oh. I'm sorry. Never mind.

James said...

Famac: "You know James, you really should spend some time thinking about how you interact with other people. I've never lobbed an insult your way, yet every one of your posts has some kind of needless dig. If you want people to respect your opinions, try a little civility."

In this thread alone, you've made an ageist comment, basically implying that your think elderly property owners are stupid.

And what about this exchange earlier in the thread:

"'1) Do the independents do this because they're stupid? They lose money on vacancies, after all.'

What if they own the property outright? All they lose is property tax and opportunity cost. Many don't understand the latter. And yes, they are probably stupid, too."

And that's just this thread. And you're going to try to lecture me on how to interact with people?

I try to be pretty patient with people and think a couple times before I react-- except for my one pet peeve with Hyde Parkers. I admit I go ballistic when people in this neighborhood start saying or implying that their neighbors are stupid.

This is one of the most educated neighborhoods in the world. If you think your neighbors are stupid, then you're oblivious beyond all help.

chicago pop said...

Further comments on this post are going to be heavily moderated until the temperature cools down in here.

I think this string has been played out as far as it can usefully go for most readers.

Stay tuned to future posts.

Elizabeth Fama said...

Ah, but you censored Emily's last line!

Famac said...

Curtsy said: "Just because there is a sign hanging from the building doesn't mean that there is necessarily a unit in THAT building available. However, call the MAC number, and they will certainly have units available in the area."

Boy, I hope that's not what they are doing. I suspect that would violate some type of ordinance. Those signs are really ugly and don't reflect well on the streets they hang on; it would be really unfair to others living in the area to hang them if it wasn't necessary.