Retailers find their wings in experimental business incubator

Conventional wisdom says retail incubators don't work.

Downtown Kalamazoo Inc.'s incubator is trying to turn conventional wisdom on its head.

When Rob Peterson was hired over two years ago as recruitment and retention guru for DKI, his mission was find businesses for downtown and help existing businesses stay. Plenty of empty storefronts needed to be filled.

Peterson started out looking in neighboring towns for successful store owners with a reputation for treating customers well and serving a unique market. He tried to find owners eager to open a second or third shop and willing to do that in Kalamazoo.

Store owners were not willing to make that leap. Going from one store to two or three would take them into the realm of a CEO, a larger scale of doing business, one beyond their comfort level.

Retail start-ups have proven to be an easier sell. As a result, storefronts in downtown Kalamazoo are filling up.

What's happening is part of an experiment that other communities are watching, a type of retail incubator that hasn't been tried elsewhere.

In traditional retail incubators a lot of little retailers share a space, at times giving the shop owners the unintended feel of doing business in a flea market. When a business outgrows the incubator the move and the subsequent struggle to educate shoppers where to find the new location can kill a fledgling enterprise.

Although there are shared customers, there's no shared space in Kalamazoo's retail incubator. Instead, the incubator is more of a process. DKI describes it as a program, not a space.

Before store owners start out in one of the spaces they get the types of assistance that have been proven to grow businesses -- training, mentors and money.

Classes are offered with John Schmitt, of the Michigan Small Business and Technology Development Center on the Western Michigan University campus. The would-be retailers learn about merchandise management, customer service and handling their books. Applicants get marketing advice and receive detailed human resources instruction, even a manual on hiring and firing employees. A designer helps with store layout.

Mentors are chosen from a pool of volunteers to complement the skills of the business owners. And for the first 18 months the retailers receive a break on their rent. It's subsidized at gradually lower rates -- 50 percent the first six months, 33 percent the next six and 17 percent the next. Rent subsidies top out at $10,000.

To become an incubator business, owners complete an application and business plan. A DKI committee reviews the business plan, checking it for areas the business owner needs to research further or rethink. When the plan is approved the new store owner signs a lease and opens shop.

Peterson's been to national meetings looking for people who know how to revitalize downtowns. When he's described Kalamazoo's plan, those who told him incubators don't work are suddenly interested. They want to find out how it works.

"I've had people say to me, 'don't you know downtown retail is dead,'" Peterson says. "I beg to differ."
 
As storefronts fill, a momentum builds. Instead of people coming down to shop at one particular store they are coming to shop the entire downtown.

"It's a downtown with stores that you don't find anywhere else," he says. "A unique shopping destination. When the local retailers do well, when we are building wealth, that wealth stays in the community. There is a higher chance they will be willing to help sponsor local nonprofits. We're creating a new vision on how to use local resources."

One business is currently applying to the business incubator. Three businesses on S. Kalamazoo Mall -- Ace's Cycle Sale and Service, Big Step Shoes and Cakes Boutique -- are currently tapping those resources in the incubator program.

At Ace's Cycle, customers are met by the smell of engines and the sound of whirring machinery as they enter the door.

Scooters, the Stella, Buddy, Blackjack and a stray Vespa, are tucked into a small show room and cycling gear fills shelves arranged around the store. Tin adds a warm touch to the 14-foot ceilings revealed in the renovation of a former hair salon space.

The comfortable mix has worked so well for Ace's Cycle that Genuine Scooter Company has named Ace's one of the company's top ten distributors -- alongside shops in Boulder, Colo., and Boston, Mass. -- even though the Kalamazoo location has not been open a full year. Genuine likes the store so much it's considering making it a model for new dealers.

Co-owners Doug Knudsen and Mike Applegate made it through a few scary weeks of winter when no one was thinking cycles and no money was coming in.

Now they can't get the cycles in fast enough. To date, the store has exceeded financial expectations, based on their business plan, which originally was something of a hard sell for the review committee that was not sure there was market for cycles. So far business has been about 50 percent sales and 50 percent service. They've sold nearly 40 cycles since the first of the year, and repaired about 30. Upgrades to make cycles go faster also has been a solid part of the business.

From a publicity standpoint, the store got good exposure when a band of rogue Rotarians calling themselves Thell's Angels rode Ace's cycles along the route of the Do-Dah Parade, part of the city's summer kickoff weekend.

Kundsen and Applegate want to connect with students at WMU by offering cycle storage, pickup and delivery. 

Ace's Cycle also is building connections with other dealers in the area and checking to see if there's a market in South Haven, where boaters and other tourists might be looking for a way to buzz around town.

At Big Step Shoes Gadson Pompey sells shoes for those who often had to resort to the Internet to find sizes 13 to 22 for men and 10 to 17 for women. Brands include Puma and New Balance, casual shoes by Rockport and Steve Madden. There are women's brands by Barefoottess, Steve Madden, Puma and New Balance.

Pompey says for him the rent subsidy and the incubator's panel of experts that helped with advice on the store has been invaluable. He says his biggest lesson was to not go overboard with inventory, but to grow it gradually as demand requires. It's coming.

From Paw Paw to Battle Creek to Grand Rapids the word is getting out to people who would actually like to see and feel the shoes they are buying. And as part of a marketing push, the store had a contest to find the biggest men's feet in Kalamazoo. A young man with size 19 feet walked away with the prize. Pompey says six men needing size 19 shoes came in the following week.

With not quite six months of experience in his own store, Pompey is finding out more about his market. He's learned customers want apparel, too. He's also planning the launch next year of Big Steps Athletics, a full scale store with athletic wear for the large athlete.

At the same time he's not ignoring his competition on the Internet. His website launched June 18 with a full online store to complement his 850 square feet of commercial space on the mall.

Women in the Kalamazoo area want trendy clothes without paying New York prices, says Cakes Boutique co-owner Patti Reinholt.

Reinholt and business partner Susan Terranella-Hoffman are seeing steady sales in women's apparel in sizes 0 to 24 for under $100.

Reinholt says she learned the fashion business as a buyer for national retailers, but she had never owned a business before. For Cakes Boutique, the rent subsidy, the training offered by Schmitt and the resources provided by the panel of experts made the store opening early this year possible.

A combination of in-store events and social networking on Facebook have helped create buzz. The two women also regularly visit customers at home or in their offices, offering style and color advice as well as personal shopping services.

The store is connecting with Western Michigan University's fashion merchandising department and one WMU grad's work is offered at Cakes. Feathered pins, headbands and earrings by local artists are placed to catch the eye of customers as they make their purchases at the cash register.

If you're wondering about why an apparel retailer was named Cakes, well, Patti Reinholt's brother called her Patti Cakes growing up. In typical family fashion it was shortened to Cakes. Now it's the name of her all grown-up store, part of a growth spurt that just might change the way people think about the future of downtown retailing.

Kathy Jennings is the editor of Southwest Michigan's Second Wave and a freelance editor and writer.

Photos by Erik Holladay

Susan Terranella-Hoffman, right, and Patti Reinholt are owners of Cakes Boutique at 245 S. Burdick (S. Kalamazoo Mall)


Gadson C. Pompey owns Big Steps Shoes located downtown at on the Kalamazoo Mall.


Doug Knudsen, owner of Ace's Cycles at 346 S. Burdick on the Kalamazoo Mall.
 


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