Friday, May 24

Crushed by soaring rents, small shops get creative

Last March, Emily Schildt opened Pop Up Grocer on the corner of Bleecker Street in the West Village, selling condiments, drinks and other artfully packaged products made by small, emerging brands in a pay-to-play business model.

Customers can buy artisanal hot sauces or zucchini chips from brands like Peepal People and Van Van that pay a fee to be on the shelves. Typically 150 to 200 brands are displayed at a time and some are replaced on a quarterly basis.

“If we were to rely solely on product sales, we would have to sell at a much higher volume,” Ms. Schildt said. “This is simply impossible when you’re talking about a store made up of completely unknown products.”

Rents for commercial space continued to rise in New York last year, making it harder for independent businesses to survive, according to real estate services firm CBRE. A 27-square-foot space in the West Village, an affluent neighborhood in Manhattan, was recently listed for $5,000 a month. But some ambitious entrepreneurs are experimenting with business models, such as charging shelf fees or selling wholesale to make ends meet.

“Either you have to get creative, or you have to get out of New York,” Ms. Schildt said.

Retail is being reconfigured to address the values ​​of the new customer, said Thomaï Serdari, who teaches marketing at the NYU Stern School of Business. “Innovation comes from those who, out of necessity, have updated their business models,” he said.

But independent retailers face challenges, including high operating costs and finding a model that works.

“Technology evolves, our cell phones evolve and physical stores evolve,” said Ani Sanyal, who with her brother Ayan founded Kolkata Chai Co., which sells products online and at two retail locations in midtown Manhattan.

Their company sells hot chai, Indian street food like samosas, seasonal soft chai, along with bags of their chai blends and products. Foot traffic is steady at both locations, Ani Sanyal said, but the company’s e-commerce business accounts for 75 to 80 percent of its revenue.

Kolkata Chai Co. also sells chai concentrate wholesale to Equinox, Juice Press and Boba Guys. The company has partnered with brands like Transcendence Coffee and celebrities like Hasan Minhaj, all of whom have posted on its social media feeds.

By using an omnichannel approach – e-commerce, wholesale and in-store – the brothers think they can expose their chai to a wide range of people and create lifelong customers. “Given that chai is a product that has been bastardized and misrepresented in this country for so long, it was really important for us to be able to truly experience our culture,” Ani Sanyal said.

Dolce Brooklyn sells ice cream and gelato at a store in Brooklyn’s Cobble Hill neighborhood, but it’s the company’s wholesale business, which sells to high-end restaurants, some with two Michelin stars, that turns a profit. “You need to find different revenue channels,” said the company’s owner, Pierre Alexandre.

Rachel Krupa’s omnichannel approach for her company, Goods Mart, includes curating and distributing snacks in hotels, cafes and corporate pantries. At Lei’s minimalist store in SoHo, one of three Lei locations, Lei sells packaged snacks from 200 brands, mostly emerging manufacturers, such as chili garlic chips made by Mama Teav’s, an Oakland, California, company.

The Goods Mart was one of Mama Teav’s first accounts when it started two years ago, and today Mama Teav products are stocked in 420 stores across the United States. “Being a small manufacturer, a new brand, we’re not going to get into Whole Foods right away,” said Christina Teav-Liu, founder of Mama Teav’s.

Ms Krupa said she would not be able to give visibility to brands like Mama Teav if it had owners who were simply trying to make money. The first landlord, Bret Trenkmann, saw the value in her mission and gave her a fair rent in SoHo, as did another landlord, Tishman Speyer, in her second location in Rockefeller Center.

Consumers, especially tourists, want authentic experiences they can’t get at home, said Ms. Krupa, who also runs a public relations firm, Krupa Consulting, that works with packaged foods and wellness brands. “You’re not going to say, ‘Oh my God, I went ice skating at Rock Center—and ate at Chili’s,’” she said.

Owners play an important role in the growth and survival of independent businesses, said Stacy Mitchell, co-executive director of the Institute for Local Self-Reliance, a nonprofit advocacy organization for independent businesses. National chains might be a safer financial choice than an independent contractor, but leasing to them is shortsighted, Ms. Mitchell said.

And giving small business owners a break can be good for owners. “The quality of street-level businesses affects the rents they can get for the upper floors, whether they’re offices or homes,” she said.

The United States is experiencing a cultural shift in retail shopping, said Syama Bunten, founder of Scaling Retail, a San Francisco-based consultancy. The direct-to-consumer model, pioneered by companies like Dollar Shave Club and Stitch Fix, was an innovative approach years ago, but now it’s saturated.

The new phase of shopping falls into two main categories: cheap and easy on Amazon and with a feeling of connection within physical stores.

Another way for independent owners to build business is through connection and community, often through in-store events, which create a vibrant street life, foot traffic and a meeting of like-minded people. A bus shelter ad might get exposure for the brand, Bunten said, but creating events and spaces for customers creates a much stronger emotional connection.

“It may not be that 100% of visitors turn into customers,” he said, “but you have a 100% chance that your brand will have a much longer lasting effect in someone’s mind than a traditional advertising message.”

Despite the levels of success they’ve seen, some small retailers question whether it’s worth it. Many of them have invested their life savings into their businesses and raised additional funds through institutional and angel investors, not to mention friends and family. They run sustainable business models and consistently post on social media. However, the cost of renting and creating a space remains a barrier.

“Something has to change,” said Ms. Schildt of Pop Up Grocer, who spent 18 months searching for the right store.

If city officials and landlords don’t realize that there are prohibitive rental costs for independent retailers, “the city will lose its color,” said Ani Sanyal of Kolkata Chai Co. “It will lose the things that drive people to come to New York.”