Gap's entry into New York City in the late 1980s was a pioneering move by suburban mall retailers into urban downtowns, said Joseph C. French Jr., national director of retail of Sperry Van Ness, White Plains, NY. Once retailers saw the volumes--including a Pathmark supermarket in New York City's Harlem neighborhood that grossed $1.75 million per week--the motivation was there.

"The top 50 urban markets [in the United States] have more potential than Russia, India and China combined," said Carl Muller, vice president of real estate and design of Wal-Mart Inc., Bentonville, AR.

But deals are much more difficult to negotiate, as some chains fear finding suitable employees, others cite permitting challenges, and still others logistics difficulties.

Employment issues actually have been a non-issue, said Timothy W. Baker, vice president of real estate for the eastern division of Pleasonton, CA-based Safeway, which is now focusing on urban stores, linked to existing infrastructure and transportation.

"In Washington, DC, you've got high quality employees," Baker said. As important is ensuring that employees have access to public transportation and safe parking. Some of McDonald's Corp.'s urban units will close the dining room at 10:30 pm to protect employees, added Daniel McVeigh, regional development director of the Oak Brook, IL-based restaurant giant.

Wal-Mart's first store in Chicago drew 5,000 applicants for 400 jobs, Muller said. Wal-Mart's plan to open 125 to 140 Supercenters next year will likely move it to new markets that include urban areas on the east and west coasts.

"We wonder why cities are allowing stores to open outside the cities rather than in [city limits]," Muller said. "As we go through our program, the urban areas are more attractive to us."

That's if the community wants them. Wal-Mart has famously faced resistance from some cities, and others also report challenges in obtaining approvals. "The biggest problem is the municipalities and permit process," McVeigh said. "Eight times out of 10 we're going through that battle."

Baker said, "The approach we take is not to keep fighting municipalities but to work with them."

The current economic environment has made some cities easier to work with. No longer are more densely populated municipalities insisting on mixed-use projects, Baker said. But a new requirement may be sustainability. Some districts now require some degree of LEED (Leadership in Energy and Environmental Design) compliance.

"In some places you have to do it," Baker said. "Green is really an undefined term. Everybody is working that way because that's what urban culture demands and it's something customers demand."

But retailers must adapt their operational model, noted Keith Sellars, senior vice president for development and retail of the Washington, DC Economic Partnership. Urban stores often must be multi-story, resulting in problems with loading docks or transporting merchandise between levels.

"The labor and equipment needed to transport [goods] are a higher cost we generally don't transfer to the customer," Muller said. "That comes out of Wal-Mart's pocket and profit goes down."

Urban units cannot be a loss leader. McDonald's Corp. self-funds its expansion, McVeigh said, and each restaurant must stand on its own. But volumes mean that even the most challenging new unit has a chance.

"If the store doesn't hit [our] hurdle, we won't do it," Muller said. "But with the density of population, it's a rare [urban] store that doesn't pencil."

Hear more from Joseph French on GlobeSt.TV, as he sits down for a retail chat with Ian Ritter, editor of GlobeSt.com:

Instant Insights /

Panel: Urban Retail Sees Unique Challenges

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