[Type here] ASSESSING TH E FLEXIBILITY OF COMMERCIAL LAND USE IN EUGENE, OREGON PLANNING FOR E-COMMERCE Paige Portwood University of Oregon 2018 Department of Planning, Public Policy and Management Table of Contents Table of Contents ....................................................................................................................... 1 Abstract ..................................................................................................................................... 3 Acknowledgements .................................................................................................................... 3 Executive Summary .................................................................................................................... 4 Overview ............................................................................................................................................ 4 Key Findings ....................................................................................................................................... 4 Recommendations ............................................................................................................................. 7 Chapter 1: Introduction .............................................................................................................. 8 1.1 Purpose .................................................................................................................................. 8 1.2 Research Scope ...................................................................................................................... 9 1.3 Research Limitations ............................................................................................................ 10 Chapter 2: The Past, Present & Future of Retail ....................................................................... 11 2.1 Historical Overview .............................................................................................................. 11 2.2 Significance of E-Commerce Today and in the Future .......................................................... 12 In Summary ...................................................................................................................................... 14 Chapter 3: Eugene’s Retail & Commercial Uses ....................................................................... 15 3.1 Local Retail Industry ............................................................................................................ 15 3.2 Commercial Land Use Designations ..................................................................................... 19 3.3 Commercial Real-Estate Vacancies ...................................................................................... 21 In Summary ...................................................................................................................................... 22 Chapter 4: Methodology .......................................................................................................... 23 4.1 Method Selection ................................................................................................................ 23 4.2 Interviews ............................................................................................................................ 23 4.3 Development Code Analysis ................................................................................................ 24 Chapter 5: Perceptions of E-Commerce and Future Retail Demands ........................................ 26 5.1 Perceptions of E-Commerce Impact on Retail and Land Use ................................................ 26 5.2 Planning for Successful Storefronts ..................................................................................... 32 In Summary ...................................................................................................................................... 36 Chapter 6: A Flexible Framework ............................................................................................. 37 6.1 Significance of a Flexible Code ............................................................................................. 37 1 6.2 Alternative Uses................................................................................................................... 37 6.3 Site design ........................................................................................................................... 39 6.4 Other Applicable Code ......................................................................................................... 40 In Summary ...................................................................................................................................... 40 Chapter 7: Recommendations .................................................................................................. 42 7.1 For All Sectors ...................................................................................................................... 42 7.2 For the Public Sector ............................................................................................................ 42 7.3 For the Private Sector and Non-Governmental Organizations ............................................. 45 Conclusion ................................................................................................................................ 47 Future Research ............................................................................................................................... 49 Appendices ............................................................................................................................... 50 Appendix A Distribution of Commercial Vacancies in Eugene .................................................... 50 Appendix B Eugene Development Code ..................................................................................... 51 Appendix D Current Barriers to Successful Barriers .................................................................... 52 Appendix C Interview Questions ................................................................................................ 53 References ................................................................................................................................ 54 2 Abstract E-commerce has emerged as one of the most popular retail channels of this generation. E- commerce, also referred to as shopping online, provides customers with a simple, convenient and accessible way to purchase products from all over the world. In response to the growing success of e-commerce and the potential it has for the future, market analysts, the Media, and even retailers are starting to question the resiliency and relevance of storefronts. Journalists have pegged the recent reoccurrence of store closings as the “retail apocalypse” (Taylor). However, though e-commerce has integrated into the retail market at such a rapid pace (a growth rate of 17% within the last year), municipalities have yet to critically examine its impact on land use and economic development planning. Furthermore, there is little research on how cities should work with or around e-commerce to maintain successful local retail stores. Furthermore, although there is significant amount of research describing what e-commerce is, how it works, as well as its marketable significance and impact on businesses nation-wide, there is little research about how e-commerce has increasingly impacted specific municipalities through city planning. This study aims to bridge these gaps in research by presenting findings from interviews with development professionals of both the public and private sectors in Eugene, Oregon. The interviews intend to reveal the shared perceptions that e-commerce has on the community’s storefront retail. This study also explores the regulatory barriers which may aid or hinder the success of stores in the future. Finally, based on the recommendations by interviewees coupled with concepts presented from outside research, this report outlines potential recommendations that retailers, developers and planners may consider when constructing new or redeveloped commercial spaces now and into the future. Acknowledgements I would like to give a special thanks to Professor Rebecca Lewis, PhD and Professor Bob Parker, AICP. Both have been great and thoughtful mentors throughout my master’s program, and also for this project. Also, I would like to thank the Urbanism Next team- Marc, Becky, Amanda and Nico for providing guidance, resources and a blogging platform to consistently share findings about my research topic If you are interested in e-commerce and would like to stay up-to-date with current events about how it continues to impact cities, please visit the Urbanism Next blog: www.urbanismnext.uoregon.edu 3 Executive Summary Overview This study examines the impacts of e-commerce on in-store retail in a mid-sized city by looking at the case of Eugene, Oregon. E-commerce is defined as the act of buying and selling goods online. Over the past few decades, e-commerce has driven the retail industry towards a new stage of technological reliance. Shopping online has an unmatched success of any other non- store retail channel; by the end of the 2016-2017 fiscal year, e-commerce was recorded to be over a 450-million-dollar industry (US Census). To fill the gaps of existing literature, this study dissects the national trends of e-commerce such as store vacancies and closings of e-commerce to discover the extent to which it is impacting commercial land use on a local scale. Furthermore, it includes interviews with employees from both private and public-sectors to gain insight into the current and future commercial land use trends in Eugene. Participants are also asked how they believe e-commerce is influencing local retailers. Additionally, this study includes a code analysis of the Eugene Development Code which measures the flexibility of the code and identifies regulatory barriers which may or may not support the future needs of land uses among an e-commerce competitive market. The following research questions guide this study: A. What are the perceptions of development professionals regarding the impacts of e- commerce on storefronts? a. How might the design and purpose of retail or commercial spaces need to change due to the growth of e-commerce retailing? B. What are opportunities and barriers that Eugene might face as it tries to prepare for the potential demands of future retail? C. How does the Eugene Development Code pose regulatory barriers to support land use recommendations in response to e-commerce? Key Findings Perceptions of E-Commerce After interviewing fourteen private, public and non-governmental employees, the following common opinions about the impact of e-commerce emerged in the analysis: • E-commerce is impacting storefronts in some capacity but does not appear to be a primary concern among the majority of participants. - Interviewees recognized that e-commerce had an impact due to the number of retailers that incorporate an online component to their business models, however it is not hindering the success of storefronts dramatically. 4 - Participants perceive Eugene’s vacancy rate as low, and therefore does not think the City is over planning or building too many spaces for commercial use. - The impact of e-commerce is not felt consistently among retailers; therefore, its perception does not seem significant across the board. There are some stores and commerce centers in the City that are building new locations or adding retail space due to popularity and demand. • E-commerce isn’t perceived to become the dominant retail channel because there will always be a societal need for in store retail. - Whether you need the last-minute outfit for an event, or basic school supplies for your kids, there are some products you will inevitably need to go to the store to buy. - There are some things such as personal customer service, inquiring for an expert’s opinion and most importantly socialization which online shopping does not offer. - It is practically impossible for participants of the study to imagine city design and planning without amenities such as retail or food and beverage sectors because they are currently such critical public activity generators. - People still want to “feel and touch” items. They want the reassurance of knowing exactly what they are buying. Additionally, there are still items that are more convenient to buy in-store than online. • Despite the need for storefronts, e-commerce will impact national retailers the most, which is likely to create issues both for the economy and land use. Niche stores are perceived to be the most “protected.” - The larger big-box stores are perceived to be threatened the most because their products can be replicated by retailers abroad and/or the national retailers have their products available online and in stores, therefore the public might have less incentive to go to the physical store. - National retailers take less risk and are more calculated about their location; therefore, continue to build the same typology that was more popular in the past, not necessarily for the future (i.e. large footprints, car-centric). - National retailers are more vulnerable because they are typically in larger big- box buildings, which is not in demand by other types of businesses. - Niche stores are seen as “protected” from being competition to e-commerce because they often carry products that are unique to that particular retailer, and thus the customer will likely not find the item anywhere else. • E-commerce will increase the need for non-traditional developments such as - Flex space which can be used and shared by multiple types of commercial uses. - Smaller sized retail businesses, and not the larger big-box stores. - Creativity and risk of the design for commercial spaces; those with semi-public space will likely have the most success among customers. 5 - Industrial and warehousing space that are allowed in properties of commercial uses. Light industrial uses could be designed and implemented in physical store sites to accommodate their needs of distribution on the same site. • E-commerce in Eugene should be encouraged and supported as a mechanism for reaching a broader clientele and supporting the makers’ movement. - Multiple participants knew of people who make a living off online sales through personal hobbies, small businesses, or other outlets. - There are examples of businesses that are now successful storefronts but started online. Without the online exposure, they might not have had the resources and support to expand Planning for Successful Future Storefronts The participants also offered the following demands of retail which are likely to become more desirable due to e-commerce: • Diversity of retail owners, products, alternative uses for commercial spaces • Accessibility of multimodal transportation networks • Niche Products • Atmosphere • Retail Anchors Based on the outlined list of demands, above, participants also provided examples of opportunities and barriers which aid the success of future retail in Eugene: Opportunities • Successful private areas of storefronts: Oakway Center and 5Th Street Market • The potential of Downtown’s “A” location1 • Affordable space compared to regional competitors • Popularity of restaurants and bars to attract the public, while maintaining activity and appeal • The City’s concentration on recruiting and enhancing higher skilled industries, as well as encouraging the traded sector to bring external revenues to contribute to the local economy • Multiple property and business owners who are integrating progressive concepts of retail, office, flex, and mixed-use spaces 1 Participants described “A” Locations as convenient, compact. Location typology is often used to easily differentiate between alternative geographic regions. B or C locations are “chopped up;” which West 11th was offered as an example. 6 Barriers • There are other concerns of retail that are currently taking precedence among professionals: - Enhancing the atmosphere to all residents around the Downtown - Creating greater economic prosperity of individual and household incomes to support retail and subsequent amenities - Dispensaries are hitting the real-estate industry quickly and hard, there is a recent concern that they will over consume the retail spaces • The lack of housing around centers of commerce. • The limited number of smaller footprint retail space. • Financial limitations to develop creative spaces and renovations of big-box stores. Regulatory barriers posed by the Development Code • The code is perceived as fairly flexible by both private and public-sector professionals • Attributes that support these opinions include: - First floor residential spaces in mixed use buildings that reside in C-1 and C-2 - Special permitting for temporary retail space (pop ups) - Industrial/manufacturing (under stipulations) in all commercial zones - Allowance of information tech services and e-commerce in C-2 and C-3 - Proper setbacks which allow space for frontage Recommendations - For the All Sectors - Increase housing around commercial areas - For the Public Sector - Expand and/or cluster E-2 Mix Use employment - Create code flexibility for temporary retail spaces - Encourage and modify the West Eugene Enterprise Zone - For the Private Sector - Take more risks on interesting retail space by integrating more flex spaces, and small footprints - Initiate an organization, program or nonprofit that facilitates networking among commercial property owners to establish a plan which guides a common vision for the types of commercial uses in neighborhoods 7 Chapter 1: Introduction Technological advancements can be powerful influencers on a city’s priorities, plans, as well as on its design and infrastructure. Within the last few decades, modern society has pushed municipalities to place regulations on smartphones, drones, and now for one of the most revolutionary innovations, Autonomous Vehicles (AVs). However, among these is another form of modernization which receives less attention in both policy and research, e-commerce. E- commerce is considered a retail channel through which individuals and retailers can buy or sell products online. Although e-commerce is a recent innovation and did not truly reach success until the dawn of the new millennium, it has proven its value as one of the most pivotal non- store channels in the history of retail. Shopping online has experienced unprecedented success because it offers distinct features that storefronts and other retail channels do not such as: • Unlimited access to items that are “available” 24 hours, 7 days a week; • Instant gratification of buying a desired item; • Access to customer reviews and product descriptions; • Complete consumer interactive control (Poel & Leunis, 1999) With the amenities that e-commerce provides to consumers as well as retailers, it is no surprise that it has experienced an unmatched rate of growth and established its significance in the retail industry. The number of individuals who now shop online is at an all-time high, and continues to grow (Bates, 2016). Today it is recorded that approximately “64% of households in America or 80 million individuals” have Amazon Prime accounts (Hyken, 2017). Market retail analysts and economists agree, with the control of e-commerce on today’s retail sphere, retailers that lack an online retail component, broadly known as omnichanneling, are most likely to see declining sales and have a higher likelihood of closing altogether (Rigby, 2011) According to the latest statistics, online sales make up 9% of all retail sales. Though this may seem modest, it showed an exponential growth rate of 17% from 2016 to 2017. In comparison, the retail industry as an entirety only grew at a 5.7% rate within the same time period (US Department of Commerce & US Census Bureau). Based on the pace of integration and adoption of e-commerce, coupled with expected future advancements, it is not farfetched to believe this technology will continue to enhance features, convenience, and accessibility of use. As retail and online retailing transforms over the next generation, communities should begin developing commercial spaces accordingly. 1.1 Purpose The following study aims to initiate conversation and awareness of the potential consequences that e-commerce could have on cities. It attempts to bridge the gap in the literature to assess how national trends of shopping online affects local economies and retailers. Through interviews with planning and commercial real estate professionals alongside a code analysis, this research determines implications and draws conclusions about the needs of future retail with 8 which Eugene and cities of similar stature can consider how to plan for long-term resiliency of a more advanced, progressive digital age. 1.2 Research Scope This report seeks to understand the impact of e-commerce on storefronts in Eugene, Oregon. It assesses the opinions of development professionals and informed private, public and nongovernmental organization employees to answer the following research questions: A. What are the perceptions of development professionals regarding the impacts of e-commerce on storefronts? a. How might the design and purpose of retail or commercial spaces need to change due to the growth of e-commerce retailing? B. What are opportunities and barriers that Eugene might face as it tries to prepare for the potential demands of future retail? C. How does the Eugene Development Code pose regulatory barriers to support land use recommendations in response to e-commerce? Terminology I have indicated frequently used terms from this study and include their definitions as context to how they are referred to in this analysis. • Retail is defined under the NAICS sectors of ‘Retail Trade’, businesses which falls under NAICS codes 44-45. Each are listed in Figure 1.1 below. Figure 1.1: Definition of Retail by Type of Business Establishment NAICS 44-45 Retail Trade 441 Motor Vehicle and Parts Dealers 442 Furniture and Home Furnishings Stores 443 Electronics and Appliance Stores 444 Building Material and Garden Equipment and Supplies Dealers 445 Food and Beverage Stores 446 Health and Personal Care Stores 447 Gasoline Stations 448 Clothing and Clothing Accessories Stores 451 Sporting Goods, Hobby, Musical Instrument, and Book Stores 452 General Merchandise Stores 453 Miscellaneous Store Retailers 454 Non-Store Retailers 9 • E-Commerce is the act of buying and selling goods online. • Retail Channel is the platform and/or business strategy which retailers choose to sell their products to customers (storefront, online, independent consultant, etc.) • Non-Store Retail is a retail channel that does not require a physical space to buy and sell goods. 1.3 Research Limitations The study presents the following limitations: • The findings and recommendations from this study are based on only a handful of development professionals in the Eugene area. Therefore, it should be recognized that the conclusions made in this report to do not showcase a comprehensive opinion of all public or private sector employees. • The commercial real-estate vacancy data is derived from LoopNet, an online database where property owners and commercial brokers list available properties. However, this data was found in April 2018. The figures indicated in Chapter 3 are merely an estimation from a single point-in-time count and may vary accordingly. 10 Chapter 2: The Past, Present & Future of Retail Shopping online, what is commonly referred to as “e-commerce,” has become one of the most widespread and competitive retail channels within the last few decades. To fully grasp the impacts and trends of the US market economy, the following chapter discusses previous shifts experienced by retail over time and justifies e-commerce as a significant retail channel for the future. 2.1 Historical Overview The history of retail is complex due to its dependency on fluctuating local and national economies. It is a commonly accepted trend that as the economy becomes successful and stable, people typically have greater spending capacity to purchase luxury items, specifically in the retail industry. However, when the opposite is true, the retail sector suffers the consequences. Alternatively, retail is also influenced by geography, human behavior, technology, competition, and many more variables (Gehrt, Ingram, & Howe, 1991). The numerous influences of the retail industry define the sector as an ongoing “transformative process.” Therefore, investors, business marketers and economist recognize dominant retail channels, or those that are “on top” for a period of time, will likely shift to a new and/or alternative channel in the future. This argument is proven by the historical patterns of retail over time, which showcases a constant shift of leading retail channels and is explained further in the following paragraphs. A dominant retail channel, in a conventional sense, became widespread in the US during the 18th century through what was known as general stores. During this era, as well as in the decades following, retail hubs were often situated along main street corridors and were thought to be a vital aspect of a community, secondary to business centers (Hahn, 2000; McArthur, Weaven, & Dant, 2015). Most all retailers were locally owned and locally or regionally sourced. This paradigm began to transition with the influx of suburbanization during the 1940s and 1950s (Hahn, 2000). Consequently, as people began to live farther away from the city center and an increase of suburban developments occurred, the fate of retail moved in a similar direction. The centralized and close proximity of retail stores that were once popular, lost their attraction and department stores shifted to become the dominant channel to retail (Arnold, 2000; Hahn, 2000). After the boom in popularity of department stores, the country experienced other major retail shifts toward even larger, corporate footprint stores like chain stores, discount department stores. Most recently superstores became the new retail channel partly due to when the notable retail giant, Wal-Mart opened in 1962. After the 60s, supercenters stayed fairly dominant with successful stores like K-mart and Target (Kelley School of Business; McArthur, Weaven, & Dant, 2015). By 1998, there was a record high number of 43,000 US suburban shopping centers and the agglomeration of department stores became the new norm (Soriano and Williamson, 1999). 1 1 Non-store retail Amazon was revolutionary at forever-changing the mechanics of the retail market both economically and socially. However, the principle of online shopping is not necessarily a new concept. E-commerce is considered a “non-store retail” which is simply defined as the buying and selling of goods or services outside a traditional store location. In fact, e-commerce is only one non-store retail channel among a multitude, such as mail order catalogs, television shopping, party-selling, and even the classic door-to-door vending (Gehrt, Ingram, & Howe, 1991). These types of non-store retailers have simultaneously developed alongside storefronts for decades. A similar shift towards the dominance of non-store retail emerged when Sears distributed its first merchandise catalog in 1888 (Sears Archives). It initiated the option of convenience for retailing, and propelled mail marketing and mail merchandise as a legitimate retail channel. Despite these other non-store channels, e-commerce set itself apart from the rest, showcasing figures and impacts that are unprecedented. For example, the effects of the catalog were not as rapid, perpetual or stable as the impacts e-commerce have been and are predicted to be. According to the U.S. Bureau of Labor Statistics, non-store retail has risen exponentially since 1995, the year that Amazon was launched; the average number of employees working for non- store retail has seen a 23% percent change from August 1995 to August 2017 (U.S. Bureau of Labor Statistics). Figure 2.1: Change in Non-store retailers in the US (1995-2017) ..d .. H, ClS,004"001 s.-ndly AdJ11,uod ..d .. TlU" "A"ll• .i-l pl~, tlloloHnd.9, -no.re r.-uUen, •--111 Mljul..ed h,-r lect.or, u~ nfu,r,-1 f!Ollatote r•t•U•n .iAJ.C. C0-1 04 .., ,_~-~--~-~-~--~-~-~-,.., 1ffl 1997 lffl 2001 2003 2(10-5 2007 200t 2011 2013 201S 2017 Source: U.S. Bureau of Labor Statistics 2.2 Significance of E-Commerce Today and in the Future E-commerce has defied the norms of needing to visit a conventional store by providing the convenience of shopping in the comforts of your own home. Despite the widespread use of e- commerce, many people are still skeptical of its significance in US cities, partly due to the frequent shifts of dominant retail channels which is depicted by history, but also due to the social attachment and enjoyment of going to a store (Dennis). With that said, it can be assumed that many cities are not prepared for the transition towards the e-commerce market. I argue, it is important for municipalities to become aware of and resilient to the consequences retailers may incur if e-commerce does in fact expand and continues to increase in the number of users, efficiency, cost competitiveness, and convenience. Cities must be prepared for the land 1 2 reallocations for commercial uses as well as the economic impacts of a decreased number of local business retailers and sales. Land Use As a dominant channel emerges in the form of a non-store retailer, the need for land use allocation, or lack thereof, will inevitably be influenced. If the consumer relies more heavily on non-store channels like e-commerce, then the demand for storefronts in-store retailers will decrease. In response to this phenomenon, cities will need to properly adapt to the loss of revenue in property taxes, local sales tax, and buildings or spaces that become desolate and inactive (Anderson, Chaterjee, Lakshmanan, 2003). In many cases, a city’s ideal design is concentrated on the idea of activating public space. As e- commerce gains popularity to be the main channel to buy and sell goods, large commercial and retail land uses formally big-box department stores, supermarkets, and even malls could continue to close leaving their stores vacant (Taylor). In addition, “convenience- location” will be one of the most important components to a successful store in the future, and thus implicate land use (Niemeier, S. and Hannemann- Strenger, L.) Because e-commerce offers a convenient method of purchase and delivery, consumers will be less motivated to make the effort to buy items in-store. This presents the argument that even if e-commerce does not drive store closings altogether, they will likely impact the location of storefronts to more convenient areas in town. This would still leave those previous spaces unused and heighten the competition for space in primary activity hubs. Land use will also be affected by e-commerce through delivery services, and thus raising the demands for more industrial space and areas for freight and shipping accessibility. In consequence, the delivery of goods associated with e-commerce will demand more distribution centers and additional delivery hubs for warehousing and shipping centers (Petterson, 2016). Further, cities will inevitably have to prioritize the locations of these spaces to ensure ease of mobility for larger vehicles or trains. Research shows the two main transportation facets of which cities are to be wary of: the space for more freight on the roads and the logistics or routes for delivery promptness and frequency. With more trips generated by shipping, transportation planning may also be affected. Not only will there be more cars, trucks, or shipping vehicles on the roads, but also more air cargo. Economic Development E-commerce is not only affecting big business retail corporations, but brick and mortar stores as well. A major concern among literature is that small or rural communities with solely brick and mortar stores are actually being affected the most. According to studies, where there is less retail diversity, the greater the likelihood that individuals who live in those towns will shop online. Therefore, because there are fewer retailers in small and rural communities, rural consumers enjoy having endless access to just about any product online. In 2007, it was found that although rural areas accounted for about 17% of the country’s population, nearly half of all eBay purchases from that year came from rural residents (Parker & Weber, 2013). 1 3 This trend causes issues because local business owners make up a large enough percentage of the total population in rural communities. As stores close, and as non-store retail employment numbers rise, this will not only affect business owners, but also their employees. If local stores continue to go out of business, unemployment rates will be significantly higher in that community, relative to the entire population total. For large department stores like JC Penney’s this could be life-changing for hundreds of people in the local area who would be jobless. In Summary In summary, technology has the capability to change the operations and demands of cities; e- commerce is just one innovation within the last few decades to have this influence on society. And although retail is often studied in literature, there are major gaps which have not explored the future of retail and how cities need to adapt to demands that are currently or will incur in the next decade. Retail and non-store retail have proven over time that there is not only one channel which is considered forever dominant. Instead, retailing showcases a variety of shifts seen through types of spaces and preferences demanded by customers and businesses alike. Based on the trends and projections e-commerce is becoming yet another push for a new era in retail. For consumers though it may seem insignificant to shop online rather than in person, e-commerce if not watched and competed with carefully has the potential to change land use as well economic development priorities and needs. 14 Chapter 3: Eugene’s Retail & Commercial Uses The following chapter introduces the study area of Eugene, Oregon with background information to familiarize readers with the City and characteristics of its retail industry. This chapter includes a brief profile of Eugene which includes pertinent demographic and economic traits. It provides insight into the retail industry specifically, while also defining the five Commercial Land Use Zones in Eugene which create the regulatory framework for retail spaces throughout the City. 3.1 Local Retail Industry Eugene is located in Oregon’s Willamette Figure 3.X Eugene, Oregon Valley Region, near the western border of the state. As the County Seat of Lane County, it has a most recent population - of approximately 161,000 people (US Census). Eugene’s median household income is $44,859 and for all occupations combined, employed residents make an average hourly wage of $22.22 (US Census; US BLS). The retail sector, in particular, shows an average hourly wage of around Source: Lane County of Governments $15.25. Table 3.1 below demonstrates how these figures compare nationally. According to the Bureau of Labor Statistics, the average hourly wage for all occupations as well as in the sales occupational group in Eugene is “statistically significant compared to the national average of all areas.” Table 3.1 Median Household Income & Hourly Wage United States Eugene Median Income $55,322.00 $44,859.00 Aver. Wage for all occupations $24.34 $22.22 Aver. Wage for Sales $19.56 $17.94 Retail -- $15.25 Source: US Census; US Bureau of Labor Statistics Additionally, the retail industry is actually among the highest occupations which employs Eugene’s residents (14%).2 ‘Sales and Related Occupations’ which encompasses retail services defined by the Bureau of Labor Statistics, is calculated to have a location quotient of 1.10, further, retail employment within this occupation group in particular shows even higher location quotients, as high as 1.46. Location quotients greater than 1.0 indicate that an area has 2 This compares nationally to11.5% and 12% in Oregon. 15 proportionately more workers than the larger comparison area employed in a specific industry sector. Not only does the US Census validate that high percentages of Eugene’s population work in retail, but a recent study congruently shows that despite a loss of jobs overall for all occupations between 2004 and 2012, the retail industry (NAICS codes 44-45) not only maintained its significance in local employment, but actually experienced growth of about 2.5% during that period. Table 3.2 Change of Employment by Sector Industry 2004 2012 Employment Change Retail 11,001 11,275 274 Other Sectors 71,646 70,457 -1,189 Total 82,647 81,732 -915 Source: Karr, P. (2018); QCEW. Retail in Eugene also demonstrates key patterns and trends based on its employment density. Figure 3.3 showcases that retail employment of Central NAICS 44 within the Business Central Commercial Commercial area (Downtown Eugene) from 2004-2012 had a - Business 16% percent change. Therefore, despite the Residential expected appeal of retail space in the Downtown, these types of retailers have nevertheless declined Business Periphery in employment numbers. If retail is stable and even growing city-wide, we can suspect that retail employment is being generated elsewhere in the city. This was in fact proven, and is indicated in Table 3.3 as well, through a growth employment density of 5% in the Business Periphery. Table 3.3 Retail Employment Density NAICS 44 NAICS 45 2004 2012 Percent 2004 2012 Percent Change Change Business Central Commercial 48.27 40.42 -16% 18.56 23.78 28% Business Periphery 9.85 10.34 5% 10.33 10.27 -1% Businesses Residential 15.18 15.18 -17% 6.05 8.03 33% Source: Karr, Peter (2018); QCEW. These figures also indicate that the NAICS 45 businesses are outpacing those of the 44 business groups in both the Central Commercial and Business Residential Areas. It is worth noting that non-store retail is considered within the NAICS 45 code, which is displayed in Figure 3.4. Further analysis would need to be conducted, however, to definitively determine if non-store retail plays a significant role in these positive percent changes. 1 6 Figure 3.4 Sectors by NAICS Code NAICS 44 Motor Vehicle and Parts Dealers Furniture and Home Furnishings Stores Electronics and Appliance Stores Building Material and Garden Equipment and Supplies Dealers Food and Beverage Stores Health and Personal Care Stores Gasoline Stations Clothing and Clothing Accessories Stores NAICS 45 Sporting Goods, Hobby, Musical Instrument, and Book Stores General Merchandise Stores Miscellaneous Store Retailers Non-Store Retailers Local Retail Nodes There are four prominent areas of retail that are located in Eugene which are frequently discussed throughout the study. An overview of key attributes and background information about each node is given below. Downtown Eugene’s Downtown is located just south of the Willamette River. It is said to have not gained widespread popularity until the University of Oregon was established in the late 1870s. Most notably, it can be recognized by a main cross-intersection of Willamette and Broadway Avenue, rather than a Main Street. This is partially due to the initial design of the city, but also due to The Baker Building, also known as the Smeede Hotel (1884) which was the central space for public gathering and socializing (DNA Eugene). Source: Running Heads Today, the Downtown has an interesting atmosphere with notable activity hubs such as the McDonald Theater, a weekly Saturday Market as well as City initiated programs like Sunday Streets, Summer Art Walk and more (Downtown Eugene Inc.). 1 7 Valley River Center Valley River Center had a grand opening in 1969. It is located in northern Eugene along the Delta Highway, just north of the Willamette River. Valley River encompasses of over 600,000 square footage of leasable space. At the time that it opened, it was the largest enclosed shopping mall within Oregon. Its most notable anchor is Eugene’s Regal Cinema, but is comprised of national retailers such as Macy’s, JCPenney’s, as well as H&M (Mall Hall of Fame). Valley River has other amenities which incentivizes community use such as a children’s indoor play area and organized Source: Mall Hall of Fame mall walking program called “Step into Fitness” (Valley River Center). 5th Street Market The 5th Street Market is a unique shopping center offered in Eugene. It resides just north of the Downtown which allows it to be very accessible by biking or walking. Additionally, because of its proximity to major roads and Interstate 5, coupled with the availability of parking, it also appeals to vehicular traffic, as well. It is designed similarly to a plaza layout and often has music playing throughout the common areas. The retail component of th Source: 5th Street Market 5 Street Market surrounds a pleasant and open courtyard. Its shops are relatively small ranging from around 500 square feet to 1000 square feet (5th Street Market). This center offers a combination of retail, food and beverage, as well as a hotel just to the west of the shopping area. 18 Oakway Center Oakway Center was built in 1966 by the McKay family. Since its construction, it has had tenants such as an Albertson’s, Tiffany Drugstore, and a local Department Store. In efforts to adapt to a new type of retail development, Oakway underwent an extensive renovation from 1998 to 2002 which demolished or remodeled over 70% of the original buildings (Oakway Center About). Source: Mall Hall of Fame Now Oakway includes a courtyard with outdoor concerts, restaurants, and retailers like Trader Joe’s, Bed, Bath and Beyond, Old Navy, and Pottery Barn. It also has smaller retailers and businesses such as locally owned salons, clothing boutiques, and a jeweler. 3.2 Commercial Land Use Designations Retail is primarily confined within the Commercial Land Use Designations in Eugene. The Eugene Development Code includes five Commercial Zones which are analyzed in the study: C-1: Neighborhood Commercial Zone is for the day-to day needs of a neighborhood. You might see the corner Dari-Mart, hair salon, or very small market in these areas. This zone requires commercial spaces to have the aesthetic of residential styles through attributes of additional landscaping and buffers compared to other commercial zones. It is designed for lots that are 5 acres or less. C-2: Community Commercial Zone supports populations greater than a neighborhood. The C- 2 zone is the largest commercial zone in area, therefore many of the larger retail hubs such as Valley River, Oakway Mall, and stores along West 11th fall within this zone. Community Commercial is allows for developments on 5 acres to 40 acres. C-3: Major Commercial Zone is the least described zone in the Code, however, its primary function is to provide commercial uses for the metro area as well as for the county. The C-3 zone comprises a vast majority of the Downtown area and also land just east of the Downtown. GO: General Office Zone allows compatible uses of specifically offices and residential spaces on the same or adjacent properties. This zone also allows retail in some cases. 19 E-2: Mixed Use Employment Zone3 is a relatively new zone in Eugene and is designed for light- medium industrial uses while also accommodating offices and commercial uses when a business has the need for transportation access. An example location is the well-known outdoor recreational retailer, Back Country Gear located on 2nd Ave. The Code also specifically indicates street infrastructure in this zone should support pedestrian/bike and transit modes. Spatial Trends of Commercial Uses Commercial Zones set the framework for the location of a majority of retail trade businesses. Before assessing the greater details of the Development Code, it is important to be familiar with key distribution and spatial trends that are illustrated in the Zoning Map (refer to Appendix A for supplemental maps). • C-2 Community Commercial (illustrated in Figure 3.5 Commercial Use Land Pink) comprises of the most commercial Designations lands (81%). It showcases allocations along major roads and highways such as the Hwy 99, Delta Hwy, Coburg Rd., and Willamette St. • C-1 Neighborhood Commercial (purple) makes up 7% of all commercial land area and displays a scattered distribution around the City. This is likely intentional to meet the daily needs of a variety of residents and neighborhoods. • C-3 Major Commercial (Red) is concentrated over the Downtown area of Eugene and is the primary zone which displays a clear representation of clustering. It comprises the least amount of land cover of all commercial zones (5%). Source: Portwood, P. • GO General Office (Indigo) showcases clustering along the north side of the Willamette River while also connecting two C-2 areas. The GO zone covers approximately 7% of commercial land area. • In general, it appears there is more land allocated to commercial zones in the mid to northern region of the City. 3 The E-2 Mixed Use Employment Zone was added to the Development Code after the available data was created. Thus, the statistics for vacancies and total area are not calculated in this study. 20 3.3 Commercial Real-Estate Vacancies For additional support to my analysis, I collected data on the count and distribution of commercial real-estate vacancies in Eugene. I derived this data from a report provided by LoopNet, a national commercial real-estate property listing company (similar to Zillow). Information on commercial vacancies is useful to this study because it gives a preliminary indication of areas that might be underutilizing their full “zoning” potential. This is most prominently seen in zones which have higher rates of vacancies compared to others. Of course, the intention of this report is not to conclude that vacancies have correlation to the success or failure of retail in Eugene, but rather gives basic insight into where spaces may or may not be desired and can also present areas in the city where there are higher numbers of vacancies, geographically, and in which zone. Based on the data, I found that according to the raw figures, C-2 Community Commercial has a vast majority of vacancies compared to other commercial zones and industrial zones (61). Figure 3.6 Estimated Commercial & Industrial Vacancies by Zone 61 60 45 30 20 22 15 0 -'---~------- - C-1 GO S 1-3 1-2 C-3 C-2 Source: LoopNet (2018); Portwood, P. However, just by glancing at Figure 3.5, it is obvious that C-2 also covers a majority of the commercial land in comparison. Therefore, to normalize the counts, I estimated the vacancies per the total area of the zone. For this calculation, indicated in Table 3.7, C-2 has a lower vacancy per square mile rate than GO General Office and significantly lower than the vacancies per square mile in the C-3 zone. Table 3.7 Estimated Commercial Vacancies by Zone (per Square Mile) Zone Total Area Vacancies sq. miles per sq. mile C-1 0.220 5 C-2 2.698 22.61 GO 0.247 24.25 C-3 0.173 127.27 Source: Portwood, P. 21 Overall, the number of vacancies revealed two key elements which is used to reach more conclusive findings: 1) The Downtown has a higher concentration of vacancies per square mile, and thus showcases an “underutilization” of its retail space. This trend may be felt more significantly compared to vacancies in C-2 and other zones due to the close proximity of vacancies in the Downtown area. 2) C-2 is the commercial zone which has a higher number of vacancies than other zones in general (and is also the zone which allows larger footprint stores). But taking into account the coverage of C-2 zone, its vacancy count is not that significant in respect to its land area. After separating the all pertinent listings (153) from LoopNet by retail, office, and industrial the data revealed the number of retail property listings had a higher percentage of vacancies than those that were office or industrial properties (42%). However, some properties include more than one unit space for each property. Therefore, when calculating the individual units which are available for lease, office space actually demonstrates higher rates for lease (47%). Table 3.8 Building and Space Vacancies by Property Type Property Number of Percent Spaces Percent Type Properties Vacant4 available Spaces Vacant Retail 65 42% 82 35% Office 57 37% 109 47% Industrial 31 20% 41 18% Total 153 232 Source: LoopNet, Portwood, P. In Summary This chapter provided an overview of basic characteristics of Eugene’s retail industry through assessing its employment rates and patterns over time. It also included key information about major retail hubs which serve a significant number of Eugene residents. Additionally, it reviewed the definitions of each commercial land use zone, while offering key observations of their distribution and trends. Lastly, this chapter revealed commercial properties that are listed for lease or for sale, which provided insight on how many vacancies there are per zone, where higher concentrations of vacancies are located, and what property typology currently has the majority of spaces vacant. Through this analysis, I discovered that retail use has the highest percentage of all properties that are currently for lease. Coupled with the literature, this finding further provides local significance for this study by discovering strategies that developers, brokers, and planners can instate to maintain a stable vacancy rate for storefronts. 4 This does not indicate the vacancy rate for Eugene, merely the percentage of retail, office, and industrial spaces which are for lease and/or vacant as of April 2018. 2 2 Chapter 4: Methodology This study is a mixed-method approach to answer the following three research questions about the commercial land use in Eugene, Oregon: A. What are the perceptions of development professionals regarding the impacts of e- commerce on storefronts? a. How might the design and purpose of retail or commercial spaces need to change due to the growth of e-commerce retailing? B. What are opportunities and barriers that Eugene might face as it tries to prepare for the potential demands of future retail? C. How does the Eugene Development Code pose regulatory barriers to support land use recommendations in response to e-commerce? 4.1 Method Selection Eugene, Oregon was selected as the primary case for this due to the convenience of conducting personal interviews with participants as well as already having a fundamental understanding of the City’s retail hubs. Both of these factors enabled the study to be narrower and focused on a single municipality in order to fully achieve a localized study and fill the gap in literature which does not often focus on how e-commerce is affecting municipalities, particularly mid-sized cities. Not until after my interviews did I realize that Eugene is also currently making significant strides to expand the local economy by attracting technology sector professionals and increasing the capacity of the traded sector5 (Regional Prosperity Economic Development Plan). Both of these objectives which guide the City’s economic plan, further establish Eugene as an appropriate geographical study area. Because as Eugene’s future forms into a significant trading distribution hub for the region alongside comprising of a technologically advanced populous, Eugene will need to consider the future shifts in resident demands for land use, design, and amenities that it offers. 4.2 Interviews This report includes a primary data collection of interviews which revealed the perspective of development professionals regarding e-commerce in the area. Interviews strictly sought the opinions of development professionals instead of other fields and/or the general public because 5 The traded sector is defined as industries in which member firms sell their goods or services into markets for which national or international competition exists (Oregonlaws.org) 23 these professionals have expertise and exposure to Eugene’s existing commercial land use, economic development, and/or a general understanding of retail spaces. Participants included: Public Sector (6) • 4 City Planning or Economic Development Employees • 1 Regional Representative • 1 Public Official Private Sector (6) • 1 Developer • 2 Commercial Real-Estate Brokers • 1 Property Owner Representative • 2 Architects Other (2) • 2 Non-Governmental Organization (NGO) Employees Interview Process I initially contacted interviewees through a general online Google search of ‘local developers’, ‘commercial real estate brokers’, ‘planners’ and ‘architects’. The recruitment process also included a snowball method in which participants recommended additional potential professionals to contact. Participants were emailed or called to inquire about a time for an interview. Each interview was anonymous, and answers are a reflection of the individuals’ perspective, and were not given on behalf of their employers. Interviews lasted from 30 minutes to an hour. Responses were recorded through a voice recorder or notetaking depending on the participant’s preference. Interview Analysis Following the interviews, I transcribed the conversations and coded them into themes based on reoccurring topics, ideas or recommendations. Additional analysis divided the responses of public and private participants to compare and contrast their perspectives of the impact of e- commerce. The interviews also exposed a distinction between opportunities and barriers to accommodate the demands of future retail that is also discussed in the analysis. 4.3 Development Code Analysis The second method used in this study is a code analysis of the City of Eugene’s Development Code, focusing on commercial zones and a mixed-use employment zone. The code analysis seeks to examine the flexibility of the Eugene Development Code to address any barriers which prevents the private sector from building progressive developments to meet the post- modern demands of retail spaces. This method assesses existing codes, policies, and ordinances for commercial zone developments. I evaluate the code’s flexibility by identifying barriers that may hinder progressive and resilient designs and attributes of developments for 24 future retail. The measurement tools to evaluate Eugene’s “flexibility” are based on supplemental articles and research as well as recommendations from interview participants. A few examples of criteria that were measured for flexibility are alternative uses like housing types that are or are not permitted, parking requirements, site design requirements and accessibility or connectivity. 25 Chapter 5: Perceptions of E-Commerce and Future Retail Demands The following chapter synthesizes interviews from fourteen development professionals who work in the Eugene Metro Area. After coding the interviews, multiple themes quickly emerged which describe potential impacts that online sales may have on storefronts in Eugene. In addition to general perceptions about e-commerce, broader concepts of opportunities and barriers of post-modern retail also emerged therefore are extrapolated from the data and explained further below. 5.1 Perceptions of E-Commerce Impact on Retail and Land Use E-commerce is impacting storefronts in some capacity, but it does not appear to be a primary concern among the majority of participants. My hypothesis anticipated that the impacts of e-commerce would be perceived as having a significant effect on retail in Eugene. However, this claim was proven to be only partially conclusive. Participants agreed that online sales are having an impact on in-store revenues because as one participants stated, “How could it not?” In this generation, it is practically impossible to find someone who hasn’t shopped online at one point or another. “Retailers have to have some kind of e-commerce presence. I don't see a whole lot of successful retail that doesn't at least have some way of interacting with people online.” Of the 14 participants, all indicated they had purchased items online, and often do so when they don’t have the time to go to the store or when it is unlikely to find an item locally. Some participants recalled specific times where they deliberately sought to find and purchase an item in-store, but inevitably had to buy it online because the item was unavailable at all the stores they visited. Not only does e-commerce make it convenient and “Having a few conversations more feasible for the individual to find products to with downtown retailers, it purchase externally rather than locally, other impacts which are discussed in more detail later in sounds like it's increasingly this chapter were also mentioned, such as: the difficult to make it in the retail declining demand of national retailers and big-box world…it does seem like the stores, demand for niche stores, the need for more competition for online materials industrial/warehousing land and space also smaller retail footprints, as well as the heightened is ever increas[ing]…” importance of the aesthetic and design of storefronts. 26 However, despite these impacts of e-commerce discussed by interviewees, there is still a greater confidence in the opposing view that online shopping is not significant enough to distinguish it as a primary threat to the longevity of storefronts. As it is currently, a majority of the participants mentioned Eugene as having a fairly low commercial real-estate vacancy rate compared to other cities in the region and nationwide. This perception of a low vacancy rate subsequently revealed that participants do not think the City is currently over planning or developing retail space. Therefore, a majority of participants believe the land designated for commercial use, as well as the number of new developments being constructed for retail space will remain balanced and thus the City will continue to avoid high vacancies and maintain success amidst the e-commerce era. Another shared opinion was that e-commerce is not widely seen as a major threat to retail because its impact cannot be equally applied across all types of retail businesses. Accordingly, the impacts of e-commerce are diluted because it is not seen as a Others also demonstrate little concern of e- major threat to the retail industry as commerce impacts and competition: an entirety. For example, one th participant has worked closely with a Eugene’s 5 Street Market just announced its locally owned home improvement expansion through a large renovation and addition store. The business owner was of retail developments. curious about the number of customers its storefront was The City is also adding retail capacity to a strip of attracting over the years and decided vacant land along the riverfront which will to start counting cars in the parking comprise of storefronts, housing and other public lot. The owner reported that his car space and amenities. counts within the last few years have not declined; and to further Note: With major new retail developments to demonstrate the stability of the come, these added spaces could, in fact, influence business, they are expanding their different findings of the perceptions of vacancies in store by opening a new location in a the future. nearby city. E-Commerce isn’t perceived to become the dominant retail channel because there will always be a societal need for in-store retail. All fourteen participants share the opinion that the store is in fact not dead. There are a multitude of situations that participants stated which proved the ongoing need for the traditional storefront such as: needing an item at the last minute, or when you can’t wait two hours, much less two days for something to arrive. One parent offered a story of needing costume materials for their kid’s school activity the next day, which they were able to conveniently purchase locally the night before. Had the only option been to purchase online, the supplies would have not have been delivered in time to be worn the next day. 2 7 Another frequently mentioned argument for the “They come here to meet storefront is the need for socialization and the desire other people, and be social, for individuals to get out of the house and enjoy the and be out. The dress store amenities of the city. Even if people are drawn to the we have here, it's convenience of shopping online, commercial uses for aesthetically more appealing, restaurants and bars are great spaces to attract the and I think it offers public to areas of commerce, which then encourages something unique that maybe you can’t find online.” people typically enjoy walking around to different places for leisure. Alternatively, cities are dependent on retail uses to encourage street visibility and maintain public activity. It was difficult for the participants to fathom what to do with vacancies of storefronts if they were no longer desired by customers, especially in the downtown. This relatively unexplored topic by development professionals in the interviews demonstrates the potential areas for research to establish future strategies. As time unfolds, if e-commerce becomes an even more dominant retail channel, it will inevitably push Eugene and other cities to further extend their plans to include more innovative, progressive, new, and creative spaces other than retail and/or restaurants. These new ways of activating space in the future will not only maintain their resiliency against e-commerce, but also ensure areas of commerce remain destinations for people to convene. Additionally, stores are seen by a majority of individuals as amenities that will always be desired and make a first impression of a city. People who live or move to a city typically look for the places of commerce to gauge the local activity, and prosperity. One participant who recruits business to the area shared the perspective that types of industries that Eugene is aiming to attract want the “urban setting.” In short, they described retail as being one of the indicators of this type of environment, as well as the activity of restaurants and bars. Finally, the storefront is perceived to be the preferred channel even into the future for all “There's always going to be a need of the traditional reasons like wanting to try for a store that you can walk into, on clothes, or “touch and feel” the product. A and a sales person who you can talk participant shared the time when one of their to, who can help you make a acquaintances was purchasing a dining room table and chairs. They were so impressed with decision… an expert.” the price, they did not consider the dimensions an d so when their shipment arrived, it was a miniature version of what they intended to buy. Others mention more simplified stories of the same situation such as clothing, gifts, or shoes- where they do not receive exactly what they expected via e-commerce retail. The interviews also revealed that sometimes you just cannot replace in-person customer service and expertise. 28 Despite the need for storefronts, e-commerce is predicted to have the greatest impact on national retailers. Niche storefronts are perceived to be the most “protected.” National retailers are perceived to be the most at-risk of closing partly due to e-commerce because their products can be easily replicated and sold at a cheaper price online and/or their products are also available on their own website which can be conveniently delivered. The second offers the perception that the public would have less incentive to go to the physical store, and just purchase their items online. Specifically, there is speculation that stores that carry daily necessity items are threatened by e-commerce the most. Participants voiced the convenience of not having to go to the store to get cotton balls, toilet paper, or cleaning supplies and how much time that saves in the day. Additionally, a handful of participants offered the perspective that national retailers are less likely to take risk on their location type, parking standards, square footage, or drive thru pharmacy type developments. They are looking for specific traffic drive-by numbers and average of the household incomes before they will locate in specific cities or neighborhoods. In the new age of retail, these more traditional styles are not perceived as resilient against an e- commerce society and new consumer demands. National retailers are more vulnerable also just because of their mere size. If and/or when bigger box stores go out of business, these spaces are harder to fill and are typically on the market longer, as one commercial broker stated. Participants understood that this impact could have greater issues in the future on land use and the local economy if e-commerce persists as a dominant retail channel for the reasons that are described in Chapter 2. Niche stores are perceived as protected, in contrast to big-box stores because they often carry products that are unique to a particular retailer, and thus the customer is likely to visit and even purchase something because they could not find a product otherwise. The perception is that people are more attracted to these types of storefronts because originality is becoming more appealing as products become widely available, and more “generic.” This aligns with the argument that customers will always be attracted to storefronts, however, the products sold at stores will increasingly have an impact on its success. E-Commerce will increase the need for non-traditional development Relating to the opinion that niche stores are protected more so than national retailers, participants also mentioned boutique-style stores will likely need to be accommodated as such, therefore more developments and designs will need to be constructed or redeveloped to fit the demands of small or creative businesses and entrepreneurs. Specifically, participants mentioned the increased need for flex space which is a space that could be utilized for a multitude of uses in the same property, particularly shared spaces between offices and commercial use, but also commercial and industrial mixed uses. In addition to flex spaces, interviewees advocated for developing more areas of commerce which are perceived as destinations and positive experiences for the public. It will be even 2 9 more important to have an ‘anchor’ which is supplemental to retail in order to further entice people to the area. Additionally, from an architect’s perspective, e-commerce is pushing the design of buildings to be better about extending the aesthetic of a semi- public atmosphere. This idea is typically seen in coffee shops, where people bring their laptops to work and/or they sit with a friend or colleague as if in the comforts of their home. The private sector is particularly aware these are the spaces that a majority of the customer base and retailers are looking for. Retailers which are “niche” businesses are especially demanding these environments. According to the private sector participants, particularly brokers and architects, their retail clients want the street appeal of constantly having customers in the windows or walking along the streets. A majority of participants also highlighted that they are already seeing a demand for smaller retail space, as small as around 500 square feet. They suspect that e-commerce will continue to drive retailers to demand these size properties. Not only does it minimize the operation costs for utilities, general supplies, and rent, but also requires less overhead, less “There's going to be competition in the employees, as well as fewer merchandise market that produces new innovative retail to fill the store. establishments like Amazon Go” E-commerce is influencing not only the retail uses, but the need for o ffice space as well. This is because as more smaller companies are incorporated via an online presence, their work will influence them to want an atypical, smaller workspace in an area such as downtown or another primary activity hub. As one participant stated, “In terms of people with online jobs that they're looking for different kinds of office space so it's no longer really about the formal conference room and fancy entry and they're not necessarily trying to put on a show.” These types of developments would likely include developments like shared office space, with an annex, communal conference rooms, or break room space can be used by various business owners and/or employees. Furthermore, Eugene is perceived to need more warehousing space as it is, however participants have the impression that even more properties will need to be allocated for industrial space to accommodate the shipping and delivery services that e-commerce requires to operate. Responses agreed that more spaces, which could be developed under the E-2 Mixed Employment, are needed to mix commercial and industrial space within the same property. 30 E-Commerce as a mechanism for reaching a broader clientele and supporting the maker’s movement E-commerce was not only seen as a potential threat, but also a benefit to retail as well. One participant stated, “E-commerce is an opportunity for us to grow our own businesses. We have really creative people here doing cool stuff!” Another participant offered a personal story, where they stated that coincidentally their spouse sold unique parts for vintage cars online and did so as a career. She stated that without the exposure that online retailing provides to her spouse’s business, there would not be the clientele to be able to support one income of their household. Lastly, another interviewee shared a news story From a retailer’s perspective: from a recent Eugene Chamber of Commerce article which featured a UO Graduate student who Saucefly, a local food specialty store decided to stay in Eugene after graduating and and Katie Brown, an independent started her own successful Etsy store seven years fashion label are new retailers along ago. She still maintains her business out of her Willamette St. Both businesses are home. Her main products include unique and fun housed in stores under 500 square calendars, prints, and other graphic design foot. While they have a physical space products. now, they paved the success of their business through their online sales. These optimistic perceptions of e-commerce Representatives of the businesses ironically pose a potential solution to increase have indicated that their storefront is incomes and therefore inadvertently helping locals the perfect size for their operations. be able to spend more into the local economy and Not only does the size of their store retailers. Additionally, e-commerce has the ability fit their needs, but also the to give a platform to creatives and small businesses convenient, downtown location. to start out, who might eventually want a storefront in the future. So, although online retailers may take away customers, in another sense, it could also be providing the means for locals to buy more products from storefronts in Eugene. Discussion of Perceptions of E-Commerce Participants mentioned two primary reasons for why they choose to shop online rather than purchasing items at a local store: availability of items and convenience of buying products. Both of these findings were identified as conclusions in the literatures as well. This study arguably expands upon the literature by determining that many individuals, who not only live in rural areas but in a mid-sized city like Eugene, also turn to online shopping because their local stores also do not have items that they are looking for. The idea that the storefront will always be a necessity for residents is also identified as a widely believed concept in literature, although it is not necessarily a conclusion that is unanimous among all research. In contrast to the reason of always needing a store for the last- minute item, just recently, Amazon recently launched a 1-hour delivery service to customers in 31 the Seattle area (PrimeNow). If this concept were to expand beyond Seattle, storefronts may indeed feel more competition for the more convenient locations in the near future. Participants also mentioned national retailers are more at risk than niche stores. While the literature does not exactly support this finding, the media has been highlighting stories of a growing number of larger footprint stores are going out of business. If this trend continues to progress, there are a limited number of options of what to do with these larger buildings, which was discussed in a majority of the interviews. The suburban retail developments which national retailers are more often located, are harder to fill might face issues of becoming unwanted areas of blight. Not being able to fill these buildings would ultimately implicate land use and eventually, perhaps lead to the need to rezone current zoning designations. Additionally, many larger national retailers employ a significant number of residents. Specifically, based on the significant percentage of residents who are employed by the retail industry in Eugene (which is greater than cities nationally), this could consequent in a larger number of people who are unemployed. These consequences which were raised and of concern by participants was also found in the literature. This research provides new findings which was not explored nor found as widely acknowledged impact in the literature which was the general consensus of currently having a limited number of nontraditional developments and primarily small footprint spaces for retailers in locations where small businesses can afford to operate and maintain. Furthermore, this demand for small space is constantly rising from past years and will continue to rise in the future, especially if e-commerce becomes more popular. Lastly, the positive perception of e-commerce among development professionals was unexpected. However, this finding of businesses and individuals prospering from e-commerce does present a narrower perspective of focusing on economic gain, while neglecting the potential issues that may occur in deactivation of land use and the use of physical space. 5.2 Planning for Successful Storefronts Future Retail Demands A majority of the participants agreed that e-commerce has played a role in the recent shifts seen in the retail market both nationally and locally. E-commerce has pushed in-store retailers to serve new demands of customers accordingly. To answer how the designs and purpose of retail is changing in general, many of the interviewees voiced their expert opinions of customer expectations for future retail spaces, property design, and general urban form for commercial areas. The following list provides key attributes of retail that are or will likely be vital for cities, developers, and retailers to incorporate into their store façade in order to meet the expectations of customers, and furthermore to maintain relevancy if or when retailers are faced with having to truly compete with e-commerce. 3 2 • Accessibility - Need for Parking (Current) - Need for Walkability - Proximity to Housing "The Nature of - Convenience to other stores • Diversity of: Retail Will Have to - National, regional and local retailers - Products Change." - Alternative uses • Smaller retail footprints • Niche products • Atmosphere • Retail Anchors6 Opportunities and Assets In alignment with these demands for successful retail, below is a list of opportunities that participants perceive Eugene’s retail industry to currently have or could have in the upcoming future. The following assets also further support the participants’ perception that storefronts will continue in the next generation. • The ongoing success of Oakway Center and 5th Street Market due to their adaptability and risks to meet the changing demands of customers. Additionally, these areas of commerce demonstrate almost all of the key attributes for future successful retail which are listed above. Oakway Center in particular has national Where 5th Street Market may lack retailers such as Trader Joe’s and Bed, diversity of national retailers, they offer a Bath and Beyond, while offering local diversity of products. They have niche retailers such as boutiques and salons stores such as a local toy shop, gift shop with smaller square footages. This center and yarn store. Furthermore, it includes also offers restaurants for people to a nice Provisions Market which carries conveniently walk to before or after food inventory such as jams, meats, and shopping. In the latest renovation, kitchenware. All retailers reside in small Oakway has incorporated a parking footprint stores within close proximity. structure and a hotel, which is said to be They also activate space with restaurants attributed to their success. and open seating. • The downtown area offers an A location with available properties which have the desired smaller footprint size. 6 Anchors are stores that initially attract customers to a shopping center. It is the idea that people will eventually walk to a neighboring retailer and continue shopping for other items. 3 3 • Eugene’s retail space is fairly affordable compared to regional competitors such as Portland, San Francisco, and Seattle. • Restaurants and bars are successful in Eugene and have become an integral use for commercial zones across the City. Especially in the downtown, eateries are known as the most predominate and widely popular businesses. Restaurants provide individuals with a basic necessity of food, while also creating a comfortable public space to enjoy. • The City and non-governmental organizations have partnered together to prioritize the increase of income per capita through recruiting and incentivizing more opportunities for the technology industry, the food and beverage and traded sectors. Within the last few years, local Eugene leaders have spearheaded a local effort to establish partnerships between the City, County and Region to form an economic development advisory board. The advisory board established goals to enhance the income levels of residents and looked at potential and promising industries which would guide the region to do so. The committee determined a few sectors to focus efforts on in order to raise skilled jobs and therefore create higher incomes. The industries that are being targeted are the technology, the traded sector, food and beverage, as well as advanced manufacturing. Retail is currently one of the top industries of employment for the city. However, retail is also considered a sector which employees lower waged jobs and lower skilled populous. These alternative sectors will help grow the income levels, local economy and even increase the success of retail businesses because residents will have the incomes to afford to consume more goods and services. Participants believe that the shift to focus on these emerging new industries will not detract from the retail industry, but rather utilize retail for an even greater purpose which attracts locals, visitors and potential residents alike. After all, “Activity and vibrant communities are what these types of industries and new professionals are interested in.” • Some Eugene property owners, developers, businesses and architects have already started to transform the commercial styles from traditional to progressive. CodeChops on Broadway in the Downtown area serves a collaborative office space for small overhead businesses and entrepreneurs. And a recent new retail and office building houses small retailers and is the new home to a local architecture firm. 34 ··,,, 'i I =11 11 L 1 •• . ==: I . 11: I~ ~ -~! "_ _ ' CodeChop on Broadway New retail and office building on Willamette St. Photo Retrieved from CodeChop via Google. Photo by: Paige Portwood Barriers to Overcome In addition to the opportunities that support stores in Eugene, there are also barriers that emerged from the interviews. The list below indicates areas where future retail may have to overcome obstacles to maintain the traditional storefront appeal for consumers, business owners, investors and developers. • Alongside e-commerce, Eugene faces other threats which development professionals are simultaneously grappling with such as: - The perception of safety and atmosphere of shopping areas, primarily in the Downtown. Three participants explicitly described how difficult it can be to lease available spaces to potential tenants in this area; “Eugene’s downtown has some characters” as someone stated. - In addition, a majority of participants mentioned the threat to retail isn’t “I think it comes back to the reason necessarily the competition among retail that retail in Eugene has struggled— channel options, but rather the economic we don't have the money here to stability of individuals and household, support it purely on our own.” which is demonstrated by the relatively low median incomes and percentage of people employed residents with low- wages. - Finally, participants are also concerned about the impacts of the quick integration of dispensaries which has an effect on both commercial spaces but also industrial space too. 35 • There is a lack of housing around centers of commerce to activate the spaces more frequently, particularly in the C-2 Community Commercial Zone. Overcoming this barrier could spark greater ownership of public areas surrounding both the housing and the areas of commercial use. This could reduce unwanted activity and maintain activity in areas before and after stores or offices close. • There is a demand for smaller footprints that is not being met. New developments are not being built and/or available space is not being retrofitted to fill this need. • The financial restraints to renovate big-box store vacancies is often a big task to tackle and can quite limiting to the private sector. In Summary This chapter discussed the general perceptions that participants had about the impacts of e- commerce. There was a consensus that although e-commerce has impacted retail in some capacity, it is not a significant factor in the current success or failure of storefronts. A major reason which seemed to support this finding was the growing retail developments that are being constructed throughout the city. Additionally, I discovered that storefronts will always be amenities desired by the public and needed by cities. Among many other reasons, areas of commerce are spaces where people can interact socially with friends and their community. E- commerce also does not have the ability to replace certain aspects of in-store amenities like personal assistance, or accessibility for last minute errands. Participants mentioned other major impacts such as having a greater significance of national retailers and big-box stores, rather than niche stores. Furthermore, e-commerce is perceived to influence the greater need of non-traditional developments, particularly for small footprints and industrial spaces. Lastly, e-commerce was perceived to have positive impacts for the local economy through giving local retailers and businesses the platform to expand their businesses externally, while bringing in local revenue. This chapter also projected the key attributes that retail should incorporate and/or retain for the future. These attributes that were developed by the interviewees were then related to Eugene’s retail industry to assess the resiliency of storefronts in the future by discussing its opportunities and barriers. 36 Chapter 6: A Flexible Framework The purpose of this section is to assess the flexibility of the Code to allow for the predicted needs of a shifting retail market. This code analysis includes five land use designations of the Eugene Development Code, refer to Chapter 3 for definitions: • C-1 Neighborhood Commercial Zone • GO General Office Zone • C-2 Community Commercial Zone • E-2 Mixed Use Employment Zone • C-3 Major Commercial Zone 6.1 Significance of a Flexible Code Professionals from all sectors indicated that the Development Code allows for a relatively broad interpretation for commercial developments, otherwise referred to as “flexible” for the intents and purpose of this study. This finding demonstrates that the Code minimizes the obstacles for developers and architects to design and build commercial spaces, so they may construct within their vision and plans. In the analysis below, I attempt to assess the Development Code through a new lens that anticipates developments which will have to compete with the popularity and amenities of e- commerce. Through this analysis I discover features of the Commercial Zones which prepare or create barriers for developers to build retail developments for future demands. Participants offered the following recommendations to inform future developments of how to build attractive, resilient spaces for the future: 6.2 Alternative Uses Alternative uses which are permitted in Commercial Zones create the purpose, atmosphere and design style that the City wishes to create in that particular area. Through the interviews, many participants revealed alternative uses other than retail, which are perceived as solutions to fill vacancies of storefronts and/or better attract individuals to areas of commerce in years to come. Housing Housing density was indicated as a primary factor to successfully activate commercial spaces among respondents. The recommendation to increase housing in areas of commerce to generate activity, coupled with the dilemma of commercial real-estate vacancies motivated my research to look into the feasibility of housing that is allowed in commercial zones. I particularly assessed the allowance of ground floor residential uses in mixed use buildings. The second assessment assumes Eugene’s housing would need to become significantly greater than the demand for physical stores. 37 My analysis found flexibility of housing and ground floor residential for mixed use buildings especially in C-1, C-2, and C-3 zones (refer to Appendix B for more details). The idea behind Amazon Corner, a new development located on the corner of Hilyard Street and 32nd Avenue was to incorporate first floor housing. The design takes the busy corner and utilizes it to concentrate areas of activity through patio seating, a restaurant and commercial uses. Hilyard St. 32nd Ave. Then, as the building moves further away from the street corner, the design incorporates first floor housing. Housing on the first floor, if designed right, offers many benefits such as a personal entry and exit, a patio and easy access to the street. Source: Rowell and Brokaw Temporary Retail (Pop Ups) Temporary Retail, also known as Pop-Ups are little shops without long-term leasing tenants. This could apply to both the physical space of the store which could be removed, such as a POD or the storefront is in a permanent location, but the products and tenants change frequently, such as on a month to month basis. Temporary retail is typically seen in larger cities; to name a few, Cleveland, Los Angeles, and Atlanta. In these larger areas property owners have become more open to shorter term leases to address the high rates of commercial vacancies (Steimer). However, due to the perception of low vacancies found in this study, the purpose of allowing temporary space in Eugene could better serve the need of the rising demand for diversity of retail and products, as well as the desire for a greater number of smaller footprints by retailers. Temporary retail space was determined not flexible due to the obstacles that are in place such as special permits for all of the commercial zones and taking into consideration the time and cost to go through the process. 38 Industrial/Manufacturing Use Infrastructure for industrial and manufacturing is currently of high demand in Eugene and shows trends of increasing even further in the future. As a solution to mitigate having to turn distributors and potential property owners and/or tenants away to other cities, I measured the feasibility of the code to allow industrial and manufacturing uses in commercial areas. The results showcase relatively flexible requirements. C-1 showcases the most flexibility to allow industrial/manufacturing uses in a commercial zone, where C-2 and C-3 offer stricter conditions for allowance. For all commercial zones that allow industrial/manufacturing, the stipulations include no external air emissions, all industrial activity has to be enclosed, it is limited to apparel and food and beverage, and parking is restricted to 5,000 square feet. Information Technology Services & E-Commerce In relation to the topic of the research, I discovered that the code specifies the permission of e-commerce activity. It appears to be integrated in to the code to establish boundaries for shipping and delivery. This attribute of the code is allowed in C-2 and C-3. It is also allowed in General Office; however, the business and its operations must not require a shipping truck. Restaurant and Beverage Professionals indicated that restaurant and beverage businesses as the showcase the most success of uses in commercial zones, particularly in the Downtown area of Eugene. Restaurants naturally provide these welcoming, semi-public spaces that are recognized to have greater importance in the future. As one participant stated to reinforce the dependability of these spaces, “Everyone has to eat.” Therefore, in congruence with this finding, I researched the zones which allow restaurants and beverage businesses in the zones and to what degree they are permitted to be in a certain zone. Restaurants are permitted in the C-2 and C-3 zones. They are also permitted in the C-1 zone, under 5,000 square feet and in GO as long as they take up 10% or less of the square footage for the entire property. 6.3 Site design I assessed site design attributes of each zone because these codes often regulate the atmosphere that businesses create. Per the conversations with participants, site design demands such as accessibility, parking, size of retail footprints, as well as the general appeal to pedestrians will all be increasingly important as time progresses (Chapter 5). Accordingly, I looked at related regulations within the Code to assess how it encourages or discourages these types of designs. I found that the Code also demonstrates flexibility through 39 this criterion. However, perhaps for this regulation, it would be more beneficial for the Code to be more direct and/or stricter for developers in order for them to consider designing progressive retail spaces. For example, placing more limits on the square footage of buildings, the number of parking spaces and increasing the amount of flex space. 6.4 Other Applicable Code Supplemental attributes of the Code were also included in the analysis to explore if there were other barriers or opportunities that the Code offered in commercial uses which pertained to the future needs of retail. I found that the City of Eugene was also adaptable and aware of potential underutilized land within the C-2. This is showcased through their incentives for new developments on sites in West Eugene (zoned C-2). In addition, it is noteworthy to mention that C-3 has a transit- oriented overlay. This is relevant because it hopes to encourage the use of transit for the area, and therefore plan for amenities, such as retail that surround the transit hub, so people are encouraged to use it due to its proximity to other uses. Additionally, the E-2 zone which incorporates both commercial and industrial uses does have a regulation that only allows 50% of the total property building to be allocated for commercial use. The code also includes specific regulation on Large Commercial Developments as well as Shopping Centers. In Summary To summarize my findings of the code analysis, below in Table 6.1, I compiled all the findings to compare the code attributes based on each commercial zone. The checkmarks indicate that the use is permitted. The dashes indicate that it was not indicated as a permitted use in the Code. Boxes with “S” or “SDS”, otherwise called Special Use Limitations or Special Development Standards, indicate uses are not permitted outright and require additional stipulations for approval. 40 Figure 6.1 Code Analysis Table C1 CZ C3 GO E2 Alternative Uses M ix e