They can provide an immediate boost in shopping districts and grow future businesses into long-term tenants.
The COVID-19 pandemic has left America’s retail districts pockmarked with empty storefronts, but there is a creative solution. These vacant spaces, which often can be purchased or rented at reduced prices, are prime targets for conversion into retail incubators.
Retail incubators, like business incubators, nurture new or small-scale entrepreneurs during the startup phase. They mitigate some of the challenges of opening a business by providing financial and technical assistance, such as the basics of marketing and business plans. Tenants typically share space, ideas and operating expenses in locations that they could not otherwise afford. Many spaces have flexible or temporary lease terms. Some allow for small-scale manufacturing and hold community events, such as product demonstrations, fashion shows and art openings.
In addition to real estate, retail incubators provide fledgling businesses with valuable resources such as technical and financial assistance. Getty Images
According to the U.S. Chamber of Commerce, new business applications in the United States set an all-time record of 5.1 million in 2021. At the same time, the pandemic has led to consolidation of space and locations by major retail brands, which reduced the prospect of attracting businesses. The challenge for small businesses is they can’t immediately fill the footprints of major store closings. However, they can make temporary use of retail space to establish their businesses, and occupying formerly abandoned stores can help energize struggling downtowns.
Many entities can create retail incubators. They include the property owners, local government agencies — such as community development corporations — that could acquire or lease the space, and community foundations and other philanthropies that could underwrite the process by engaging nonprofit community organizations. For example, a property owner could set aside a portion of the ground floor for a retail incubator. The space could be made flexible — in size and cost — to suit the needs of emerging businesses.
Retail Incubators in Action
In downtown Washington, D.C., local property owners and a business improvement district recently partnered to form a retail incubator. Spurred by numerous ground-floor retail vacancies, the partnership came together to offer popup space to local entrepreneurs with a priority given to business owners of color. One successful tenant deal helped launch The DC PopUp, a collective of makers who are women of color, to create a shared downtown retail space where they can sell their products. The popup started as a holiday event but proved so successful that the collective extended its tenancy year-round.
In Atlanta, The Village Market launched in 2016 as a popup event to create more sales opportunities for Black-owned product businesses. The event grew into a permanent shared retail space in the Ponce City Center. It focuses on training and systems to help vendors grow from six-foot vendor tables to bricks-and-mortar locations, bringing more than $4.5 million in sales to these business owners in the first year.
In some markets, small-scale manufacturers won’t be able to pay prime retail rents; in others, access to micro-retail space might enable an above-market rate. Property owners could consider percent-revenue leases, shared storefronts (like a food hall but for producers), or low- to no-cost seasonal popup spaces. Over time, growing businesses could scale to larger spaces.
The benefits to the community can be profound. Small-scale manufacturers, for instance, can energize business communities by creating a draw, which can bring foot traffic to nearby retail outlets. They diversify local employment and business ownership, as owners come from the full spectrum of the community — crossing racial, ethnic, income and other divides. Their unique products draw on the heritage and skills of a wide variety of individuals and communities. In addition, these businesses create jobs for people with a broad range of skills and generate community wealth through business ownership.
The shared facilities attract residents and visitors alike, and downtowns are differentiated and distinguished by a collection of businesses that are unique and marketable.
COVID-19 has devastated small retail businesses and local business districts, but the dynamics it has set in motion can provide hope. Retail incubators and other flexible concepts of shared retail space have the potential to help business districts flourish.
What Does a Business Incubator Do?
According to Entrepreneur magazine, business incubation programs aim to assist in the formation and growth of new firms by providing them with resources including financial and technical assistance. Private enterprises, municipalities and public organizations such as universities frequently sponsor these efforts. The National Business Incubation Association says the goals of business incubators are:
- Create jobs in a community
- Enhance a community’s entrepreneurial climate
- Retain businesses in a community
- Build or accelerate growth in a local industry
- Diversify local economies
Incubators assist fledgling entrepreneurs in several ways. For example, they supply office and manufacturing spaces at below-market prices, and their team provides assistance and much-needed experience in building business and marketing plans, as well as assisting in the funding of start-ups. Firms normally spend two years at a business incubator, during which time they frequently share telephone, secretarial, office and production equipment expenditures with other newborn companies.